Junk downtrend resumes; Carvana plunges on mass firing; Coinbase falls; Fresh Market up

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 11 – Junk bond issuers continue to shun the primary market on a quiet Wednesday.

Meanwhile, the relief in the secondary space on Tuesday proved to be short-lived with selling pressure resuming on Wednesday as the market digested the latest Consumer Price Index report.

While April’s inflation rate of 8.3% reflected a month-over-month decrease, the figure was still above expectations for a rate of 8.1%.

The market was firm early in the session with initial reactions to the report favorable. However, the market turned lower heading into the close to end the day with losses.

While trading activity amid the recent volatility has been thin, there was an uptick of activity on Wednesday with new paper, topical news and earnings jolting activity in the space.

From recent issues, Frontier Communications Holdings, LLC’s new 8¾% first-lien secured notes due 2030 (B3/B/BB+) closed well off the highs of the day, the notes maintained a large premium despite the pressure in the market.

However, Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) plunged after the used car e-commerce company announced mass layoffs.

Coinbase Global, Inc.'s two tranches of senior notes (Ba1/BB+) also fell following earnings with the shorter duration tranche sinking more than 9 points in heavy volume.

However, Fresh Market, Inc.’s 9¾% senior notes due 2023 (B3/B-) were a bright spot in the market with the notes reclaiming par following news Chilean retail group Cencosud had purchased a majority stake in the grocery store chain.

Primary

The dollar-denominated primary market remained quiet on Wednesday, with no deals pricing and none announced.

In the euro-denominated market Loarre Investments Sarl circulated initial price talk on its €850 million two-part offering of seven-year senior secured notes (Ba3//BB) supporting the capitalization of Spanish soccer organization La Liga by CVC Capital Partners.

A tranche of fixed-rate notes has initial guidance in the 7% area, while a tranche of floating-rate notes is initially guided with a 500 basis points spread to Euribor, with no Euribor floor, at 97 to 98.

Tranche sizes remain to be determined.

Given that the La Liga deal has the primary market spotlight all to itself, the roadshow has been well attended, a market source said, adding that market conditions have driven pricing on the deal well north of CVC's earlier expectations.

Covenant concessions may also be in the offing, the source added.

The deal could price as early as Thursday.

Frontier holds

While the notes were poised to close well of their highs, Frontier’s new 8¾% first-lien secured notes due 2030 maintained a large premium in active trading.

The 8¾% notes traded as high as 103 amid the market strength early in the session, a source said.

However, they gave back their gains and stood poised to close the day slightly softer.

The notes were changing hands in the 101¾ to 102¼ range heading into the close, a source said.

There was $47 million in reported volume.

Frontier broke the primary market’s silence and priced a $1.2 billion issue of the 8¾% notes at par on May 9.

The notes played to heavy demand during bookbuilding with the notes pricing cheap compared to Frontier’s capital structure.

Carvana plunges

Carvana’s 10¼% senior notes due 2030 plunged in heavy volume on Wednesday after the company announced mass layoffs.

The 10¼% notes sank 6½ points. The notes opened the session down 3 points with losses mounting as the session progressed.

The notes were changing hands in the 84½ to 85½ area heading into the market close, a source said.

There was $75 million in reported volume.

Carvana’s outstanding notes were also tanking on the news.

The company’s 4 7/8% senior notes due 2029 fell 5 points to close the day at 64 with a yield of 12.5%.

The 5 5/8% senior notes due 2025 were down 6¾ points to close the day at 73¾ with a yield of almost 16%.

There was $19 million in reported volume.

Carvana’s bonds plunged after the company announced a mass layoff of 2,500 workers.

The company blamed a “recession” in auto sales for the layoff, CBS News reported.

Carvana was already considered an iffy credit but the news further fueled concern about the company’s fundamentals, a source said.

Coinbase melts

Coinbase’s two tranches of senior notes were among the leading decliners of Wednesday’s session with the cryptocurrency exchange’s 3 3/8% senior notes due 2028 outpacing Carvana in losses.

The 3 3/8% notes fell 9½ points following earnings.

The notes were changing hands in the 67½ to 68 context heading into the market close with the yield of about 10½%.

There was $30 million in reported volume.

The 3 5/8% senior notes due 2031 were down about 3½ points.

They were changing hands in the 63 to 63 5/8 context heading into the close with a yield of about 9½%.

There was $43 million in reported volume.

“It’s a crypto meltdown,” a source said.

Coinbase’s capital structure was under pressure after the cryptocurrency exchange announced a large earnings miss and a new risk factor which sparked bankruptcy fears, a source said.

In its 10-Q report, Coinbase warned the crypto it holds for users could be subject to bankruptcy proceedings with customers considered unsecured creditors.

However, Coinbase’s chief executive officer has publicly stated the company is not at risk of bankruptcy and the addition of the risk factor was the result of an SEC requirement.

Fresh Market gains

Fresh Market’s 9¾% senior notes due 2023 were a bright spot on another heavy day for the secondary space.

The notes jumped 4 5/8 points to close Wednesday at par.

There was $35 million in reported volume.

Fresh Market’s notes were boosted by news Chilean retail group Cencosud had purchased a 67% stake in the company from funds managed by Apollo Global Management.

While Apollo will retain a minority stake in the company, Cencosud announced it is eyeing full ownership.

Fund flows

High-yield ETFs saw a substantial $412 million of daily cash inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds were negative on the day, however, sustaining $272 million of Tuesday outflows, the source said.

Indexes

The KDP High Yield Daily index was down 7 points to close Wednesday at 57.3 with the yield now 6.75%.

The index rose 7 points on Tuesday after falling 52 points on Monday.

The ICE BofAML US High Yield index fell 3.2 basis points with year-to-date returns now negative-9.935%. The index gained 5.2 bps on Tuesday and fell 80.5 bps on Monday.

The CDX High Yield 30 index was down 13 bps to close Wednesday at 100.41.

The index gained 41 bps on Tuesday after falling 70 bps on Monday.

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