Skillz high-yield bonds tucked away; Staples active post-earnings; Coinbase bounces off lows

By Paul A. Harris and Abigail W. Adams

Portland, Me., Dec. 16 – The high-yield new issue bourse remained dormant on Thursday, with market sources professing the belief that the blazing, record-setting 2021 new deal machine has run its course.

Skillz Inc.’s 10¼% first-lien secured notes due December 2026 (B3/B-) may mark the last deal of the year.

While the notes changed hands at a premium to their deeply discounted issue price, secondary activity was sparse with the notes largely tucked away.

Meanwhile, the secondary space was volatile on Thursday with the cash bond market opening the day up ¼ point but closing the day largely unchanged.

“It began strong but deflated,” a source said.

The market is continuing to digest the Federal Reserve’s accelerated timeline for bond tapering and rate hikes.

The market rallied following the Federal Reserve announcement on Wednesday with the new timeline largely falling in line with expectations.

However, “people are getting nervous,” a source said, regarding the possibility for error in an overtightening of monetary policy.

While volatile, trading activity remained light as liquidity continued to thin heading into the end of the year.

Topical news was the driving force of trading activity in the space.

Staples Inc.’s junk bonds were active although little changed following the office supply retailer’s earnings.

Talen Energy Supply LLC’s distressed junk bonds were taking a hit in high-volume activity following the closure of additional financing through a first-lien revolving credit facility.

Coinbase Global, Inc.'s 3 3/8% senior notes due 2028 (Ba1/BB+) were active with the notes bouncing off a new all-time low set the previous session.

Skillz closes primary

The high-yield new issue bourse remained dormant on Thursday, with market sources professing the belief that the blazing, record-setting 2021 new deal machine has run its course.

Should that be the case the final issue of the year will be the Skillz Inc. 10¼% first-lien secured notes due December 2026 (B3/B-) which priced Wednesday at 95 to yield 11.598%.

Thursday activity in that $300 million issue was negligible, according to traders who reported a wide market of 95 bid, 97 offered.

One trader saw a small amount change hands at 96½ on Thursday afternoon.

The fact that the debut issuer – which posted negative year-over-year earnings in the third quarter – got its deal done indicates an appetite for yield that remains vigorous, a market source remarked on Thursday.

In its wake the active new issue calendar is clear, and will possibly remain that way until 2022, sources say.

Staples active

Staples’ junk bonds were active after the office supply retailer reported third-quarter earnings.

While the company’s 7½% senior secured notes due 2026 (B2/B) were nominally improved, the 10¾% senior notes due 2027 (Caa1/CCC+) were largely unchanged.

The 7½% senior notes gained ¼ to ½ point over the past week to break par.

They were changing hands in the par to par ¼ context during Thursday’s session, a source said.

There was $16 million in reported volume.

However, the company’s 10¾% unsecured notes due 2027 continued to trade on a 92-handle.

While the notes traded as high as 93 with the market strong early in the session, they dropped back down to the 92¼ to 92½ context as the session progressed.

While price appreciation in the company’s junk bonds was muted, its financials did show signs of progress, a source said.

Sales were up 7% and third-quarter adjusted EBITDA was up 28.8% to $197 million.

While the company remains highly leveraged, its third-quarter earnings did reflect improvement in its credit profile, a source said.

Talen under pressure

Talen Energy’s distressed junk bonds took a further hit on Thursday after the company announced it had completed additional financing through a private investor-led first-lien revolving credit facility.

Talen’s 10½% senior notes due 2026 sank 2¾ points to close the day at 48¾, a source said.

There was more than $27 million in reported volume.

Talen’s 6½% senior notes due 2025 sank to 43 3/8 with $18 million in reported volume.

The notes fell after the power producer announced it had upsized and closed its previously announced first-lien revolving credit facility.

The credit facility was upsized to $848 million with Apollo Capital Management LP, Diameter Capital Partners LP, and Owl Creek Asset Management, LP joining GoldenTree Asset Management LP and Silver Point Finance, LLC in providing financing.

Talen’s 10½% senior notes have cratered almost 20 points since the credit facility was announced in early December.

The additional financing was needed due to a breach of the leverage covenant on the company’s existing credit facility.

The new first-lien facility pushes Talen’s junk bonds further down in its capital structure.

Coinbase changes direction

Coinbase’s 's 3 3/8% senior notes due 2028 (Ba1/BB+) were active and bouncing off a new all-time low during Thursday’s session.

The 3 3/8% notes rose about ½ point. They were changing hands in the 92 to 92½ context during the session.

There was about $20 million in reported volume.

The notes traded as low as 91¾ during Wednesday’s session.

While not as active, the crypto-currency exchange platform’s 3 5/8% senior notes due 2031 traded down to their all-time low of 92 on Thursday.

Coinbase’s 3 3/8% and 3 5/8% notes have been under pressure since pricing at par in mid-September.

The notes were heavily shorted and have traded below par for the majority of their time in the aftermarket.

Coinbase’s capital structure has come under increased pressure over the past two weeks as the price of Bitcoin cratered and the company’s stock plummeted more than 20%.

Indexes

The KDP High Yield Daily index gained 10 points to close Thursday at 65.5 with the yield now 4.07%. The index shaved off 2 points on Wednesday, 12 points on Tuesday and 4 points on Monday.

The CDX High Yield 30 index fell 12 basis points to close Thursday at 108.52. The index gained 29 bps on Wednesday after falling 15 bps on Tuesday.

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