Morning Commentary: Netflix bonds up as subscriber losses stanched; Cornerstone on deck

By Paul A. Harris

Portland, Ore., July 20 – The high-yield bond market opened unchanged on Wednesday and had firmed slightly by mid-morning, traders said.

With the S&P 500 stock index down 0.21% at mid-morning, the iShares iBoxx $ High Yield Corporate Bd (HYG) share price was up 0.25%, or 22 cents, at $75.98.

Investors lifted the bonds of Scotts Valley, Calif.-based subscription streaming service Netflix, Inc. as the company reported that its second-quarter subscriber losses were less than half those that it sustained the previous quarter.

The Netflix 4 7/8% senior notes due June 2030 were up ½ point at 97¾ bid, 98 offered, the source said.

On its Tuesday earnings call, Netflix said it lost approximately 970,000 subscribers in the second quarter, less than half of its 2 million first-quarter subscriber loss.

The company also reported that it intends to roll out a lower-cost ad-supported streaming service in early 2023.

In its guidance for the quarter ahead, Netflix said it expects to add 1 million net new subscribers.

The most recent deal to clear the market, the Garden SpinCo Corp. (Neogen Corp.) 8 5/8% senior notes due July 2030 (B2/BB) were unchanged on the morning at 103 5/8 bid, 103 7/8 offered, said the trader.

The $350 million issue priced on July 6 at par, the only dollar-denominated new issue since the conclusion of the Independence Day holiday weekend.

In the primary market, Camelot Return Merger Sub Inc. is on deck with an upsized $710 million offering (from $600 million) of six-year non-call two-year senior secured notes (B2/B).

Talk has the notes coming with an 8¾% coupon, discounted to approximately 90.3, to yield in the 11% area (wide to early yield guidance of 10½%).

The deal, backing the buyout of Cornerstone Building Brands, Inc. by Clayton, Dubilier & Rice, is set to price later on Wednesday.

With the upsizing of the notes offering, a concurrent first-lien term loan was downsized to $300 million from $410 million.

The $1.01 billion of debt that Camelot/Cornerstone is attempting to syndicate, across both the loan and the notes, was playing to around $900 million of demand early Wednesday morning, a trader said.

There is only one other offer presently in the market.

Patagonia Holdco LLC is on the road with a $500 million offering of seven-year senior secured first-lien notes (B1/B+) supporting the buyout of Lumen Technologies' Latin American operations by Stonepeak.

Initial guidance specifies a 7½% coupon at OID 86.

Pricing is set for the week ahead.

Tuesday fund flows

The daily cash flows of the dedicate high-yield bond funds were mixed on Tuesday, according to a market source.

High-yield ETFs saw $319 million of inflows on the day.

However, actively managed high-yield funds were negative on the day, sustaining $111 million of outflows on Tuesday, the source said.

The combined funds are tracking $1.15 billion of net outflows for the week to Wednesday's close, according to the market source.

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