Avient reopens HY primary; secondary rally continues, posts strong monthly gains; Avaya tanks

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 29 – While the domestic high-yield primary market saw another quiet week, Avient Corp.’s $725 million placement of 7 1/8% senior notes due August 2030 (Ba3/BB-) provided a glimmer of light with the deal heavily oversubscribed and putting in a strong secondary market performance.

One deal remains on the forward calendar heading into the first week of August – Patagonia Holdco LLC’s $500 million offering of seven-year senior secured first-lien notes (B1/B+).

The roadshow for the notes was scheduled to wrap early in the week; however, there have been no recent updates on the deal.

The week ahead is expected to be a quiet one with several deals on the shadow calendar pushed until post-Labor Day.

Meanwhile, the secondary space had a quiet session on Friday with volume thin.

However, the market extended its rally with returns for July nearly eliminating losses from June.

The ICE BofAML US High Yield index posted monthly returns of 5.574% in July after dropping 6.5% in June.

The market has been reassessing its forecast for the rate hike schedule and the probability of recession after Federal Reserve chair Jerome Powell acknowledged financial conditions had become tight.

Credit spreads have tightened over 100 bps in the past month, a source said.

“That’s a big tightening,” the source said.

High-quality and crossover credits were the largest gainers in the most recent rally with the strong credits in demand with investors still wary of a recession and tight financial conditions on weaker parts of the market.

Ford Motor Credit Co. LLC is among the credits in demand with its unsecured notes (Ba2/BB+) making strong gains in the space.

However, Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC+) were only nominally improved as the market roared, with the credit one that investors remain wary of.

And while the overall market was strong, earnings disappointments continued to result in outsized losses in certain credits.

Avaya Holdings Corp.’s 6 1/8% senior notes due 2028 (B2/B+) plummeted double digits on Friday after a preliminary earnings release reignited fears about the company’s future viability.

Primary market eyed

The primary market, which has been all but shuttered since mid-June, enjoyed a glimmer of light during the past week as Avient saw solid or better execution in its $725 million placement of 7 1/8% senior notes due August 2030.

The heavily oversubscribed deal priced at par on Wednesday, inside of talk and on an accelerated timeline, and proceeded to trade higher in the secondary market (it was 103 bid at midday on Friday, a trader said).

The Avient deal demonstrates that there is liquidity in the market for a new issue from a good company with double-B credit ratings, sources say.

There was one other caveat: market conditions.

Volatility ebbed during the middle part of the past week, and the capital markets backdrop became as favorable as it has been all summer, a trader said.

Whether those factors will conspire again to open another issuance window in the week ahead remains to be seen, the trader added.

Meantime, word spread around the market during the past week that dealers have pushed some junk bond offerings related to committed financings into the post-Labor Day period, which is over a month away.

That appears to be the case with an expected $5.4 billion of debt offerings backing the leveraged buyout of Tenneco Inc. by Apollo Global Management Inc., sources say.

Before being pushed into the post-Labor Day timeframe the bond deal, $2 billion of secured notes and $1 billion of unsecured notes, had been pre-marketed and telegraphed to investors as expected July business, according to a portfolio manager who took part in one of the calls.

A quiet start to the first week of August will therefore take very few market watchers by surprise.

There remained one deal on the active forward calendar at Friday's close.

Patagonia Holdco was scheduled to wrap up a roadshow for its $500 million offering of seven-year senior secured first-lien notes (B1/B+) early in the past week.

It has been radio silence since the beginning of the week on the Patagonia offer which comes in support of the buyout of Lumen Technologies' Latin American operations by Stonepeak.

Due to the summer issuance drought high-yield accounts initially took notice of the Patagonia deal, sources say.

However, the perception that seems to have evolved in the interim is that the Patagonia deal is more of an emerging markets play, and hence its high-yield audience faded, they add.

Ford strong

Ford’s senior notes rallied over the past week with the automotive company among the strong credits investors have sought out as spreads tighten.

Ford’s 4.95% senior notes due 2027 rose another 1 point on Friday with the notes changing hands in the 98½ to 99 context heading into the market close.

The yield on the notes was about 5.3%

The notes have risen 3 points over the past week.

Ford priced a $1.5 billion issue of the 4.95% notes at 99.99 in late March.

The notes traded to an all-time low of 89¼ in mid-June.

Ford’s 2.9% senior notes due 2029 also gained 1 point with the notes closing Friday in the 84¼ to 84¾ context.

The notes have also climbed 3 points on the week.

Ford reported a strong earnings beat over the past week which helped contribute to investor demand for the notes.

Carvana lags

Carvana’s 10¼% senior notes due 2030 once again lagged in the market rally with the notes only up slightly as the broader market roared.

The 10¼% notes closed Friday on an 82-handle with the notes roughly unchanged week over week, according to a market source.

The company is one of the weaker credits that investors have been wary of amid recession forecasts and elevated default risks, a source said.

The e-commerce used car company is scheduled to report earnings on Aug. 4.

Avaya tanks

Avaya’s 6 1/8% senior notes due 2028 plummeted double digits on Friday after preliminary earnings results reawakened bankruptcy fears.

The 6 1/8% notes sank 20 points to the mid-40s after the company downwardly revised its earnings forecast for the second time.

The technology company announced Friday that revenue for the current quarter is expected to be between $575 million to $580 million from their previously downwardly revised forecast for $685 million to $700 million.

Adjusted EBITDA is now expected to be $50 million to $55 million from previous guidance of $140 million to $150 million.

The company also announced a leadership shakeup with the chief executive officer replaced.

Avaya is scheduled to report earnings on Aug. 9.

Indexes

The KDP High Yield Daily index gained 28 points to close Friday at 57.06 with the yield now 6.58%.

The index was up 16 points on Thursday and 17 points on Wednesday, fell 17 points on Tuesday and rose 2 points on Monday.

The index posted a weekly gain of 46 points.

The ICE BofAML US High Yield index gained 73.8 bps with the year-to-date return now negative 8.874%.

The index rose 57.3 bps on Thursday, 26.3 bps on Wednesday, fell 31 bps on Tuesday and gained 3.6 bps on Monday.

The index posted a cumulative gain of 130 bps on the week.

The CDX High Yield 30 index rose 16 bps to close Friday at 101.15.

The index rose 46 bps on Thursday, 90 bps on Wednesday, sank 50 bps on Tuesday and gained 13 bps on Monday.

The index posted a cumulative gain of 115 bps on the week.

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