Junk secondary lifted on Fed announcement; Carvana claws back; Charter gains; Uber mixed

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 4 – There was no primary market news on Wednesday, as the Federal Reserve Bank's Federal Open Market Committee fulfilled the market's expectation by raising the benchmark Fed Funds Rate by 0.5%, the biggest increase in over two decades.

Meanwhile, it was another day of head-spinning volatility with the secondary space weak early in the session as the market awaited the Fed’s announcement.

“Then Powell began to talk,” a source said.

The secondary space surged into the close with the CDX index gaining 50 basis points in less than one hour and the iShares iBoxx $ High Yield Corporate Bond ETF and SPDR Bloomberg High Yield Bond ETF rising 80 cents and 92 cents respectively.

Buyers returned to risk assets in full force after Federal Reserve chair Jerome Powell assured of no 75 bps rate increase, although the committee planned more 50 bps rate increases at future meetings.

Several badly battered bonds in the BB and CCC index continued to improve as recession jitters waned.

Carvana Co.’s 10¼% senior notes due May 2030 (Caa2/CCC) remained in focus with the notes continuing to claw back after steep losses during initial days in the market.

Charter subsidiary CCO Holdings LLC’s junk bonds (B1/BB-) were also on the rise in active trading.

However, Uber Technologies, Inc.’s junk bonds were mixed post-earnings with its short-duration notes on the rise while its low-coupon, longer-duration notes were largely unchanged.

Primary

The most recent development in the dollar-denominated new issue market came late Tuesday when Bioventus Inc. withdrew its $415 offering of five-year senior notes (Caa1/CCC+), citing market conditions.

It was to be the Durham, N.C.-based orthobiologics supplier's debut-high yield bond offering.

When the Bioventus deal failed to price last week, as scheduled, it came under the shadow of the Fed, which made finding the right price very challenging, indeed, a bond trader remarked.

Although the dollar-denominated active new issue calendar is empty, there is a lone euro-denominated high-yield buyout deal in the market.

Kepler SpA is marketing a €345 million offering of seven-year senior secured floating-rate notes (B3/B-) in support of the buyout of Biofarma SpA by France-based private equity investor Ardian SAS from White Bridge Investments.

The roadshow is scheduled to run through Thursday.

Carvana claws back

Carvana’s recently priced 10¼% senior notes due May 2030 continued to claw back from their lows with the notes returning to a 99-handle for the first time since breaking for trade.

The 10¼% notes were marked at 98½ bid, 99 offered early in the session and continued to gain steam as the session progressed.

The notes were changing hands in the 99 to 99½ context as the market surged into the close.

The $3.275 billion issue, which priced at par on April 27, continued to dominate activity in the space with $35 million in reported volume.

Wednesday marked the first session the struggling notes have traded on a 99-handle since their initial day in the market.

The notes traded as low as 96¾ last Friday but have risen more than 2 points since Monday.

CCO gains

Charter subsidiary CCO Holdings’ junk bonds were lifted in high-volume activity on Wednesday as buyers returned to the space.

The 4½% senior notes due 2030 were the subsidiary’s most active issue with $23 million in reported volume.

The notes gained ¾ point to close Wednesday at 87¼ with a yield of 6½%.

The 4¾% senior notes due 2032 rose 1 point to close the day at 86½ with the yield 6 5/8%.

The 4¼% senior notes due 2034 rose ½ point to close the day at 79 5/8 with a yield of 6.8%.

And the 5% senior notes due 2028 rose ¾ point to 95 with the yield 6%.

The notes were active with each seeing more than $15 million in reported volume.

The notes have been trading near their multiyear lows with rate-sensitive names hard hit amid rising rates.

The weakness in the notes was further compounded by a rating downgrade mid-March.

Uber active

Uber’s junk bonds were mixed after the ride-sharing company announced earnings prior to the market open.

The 4½% senior notes due 2029 (B2/B-) were relatively unchanged in active trading after being lifted the previous session.

The 4½% notes continued to trade on an 86-handle and closed the day at 86¾ with a yield of 6.845%, according to a market source.

The notes were active with $20 million in reported volume.

While relatively unchanged on Wednesday, the 4½% notes gained more than 1 point on Tuesday heading into earnings.

The company’s 8% senior notes due 2026 gained 1½ points to close Wednesday at 106 3/8 with the yield 2.925%.

There was $10 million in reported volume.

While the company reported losses due to its equity investments, it also reported surging revenue and an adjusted EBITDA of $168 million, which was a significant increase over the previous quarter.

The company also announced that it expects to generate meaningful free cash flow in 2022, CNBC reported.

ETF inflows continue

The high-yield ETFs saw $422 million of daily cash inflows on Tuesday, according to a market source.

It was the second consecutive solid inflow for the ETFs, following $444 million of inflows on Monday.

Actively managed high-yield funds sustained $260 million of outflows on Tuesday, the market source said.

Indexes

The KDP High Yield Daily index rose 14 points to close Wednesday at 58.62 with the yield now 6.41%.

The index gained 13 points on Tuesday after sinking 36 points on Monday.

The ICE BofAML US High Yield index shaved off 6.6 bps with the year-to-date return now 8.372%.

The index rose 28.2 bps on Tuesday after falling 58.5 bps on Monday.

The CDX High Yield 30 index gained 50 bps to close Wednesday at 102.83.

The index rose 50 bps on Tuesday and 24 bps on Monday.

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