Junk softens after jobs report; Charter below par; Advisor at a premium; Carvana gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 5 – The domestic high-yield primary market remained dormant on Friday after the previous session’s $2 billion burst of issuance.

Patagonia Holdco LLC cleared the active forward calendar on Friday as it withdrew from the market a struggling $500 million offer of secured notes (B1/B+), and shifted the proceeds to its concurrent bank loan.

While the calendar is empty heading into the coming week, sources expect to see some activity in the week ahead with the deals to clear the primary over the past week playing to healthy demand.

Meanwhile, the junk secondary space softened on Friday as the market digested July’s non-farm payroll report, which blew past expectations.

Job growth in July doubled expectations with unemployment remaining near historic lows.

While the strength of the labor market relieved some recession fears, the report sparked a sell-off in Treasuries as the market again adjusted its expectations for the Federal Reserve’s rate hike schedule.

However, a weak open was met with opportunistic buying and the cash bond market closed well off the lows of the day and launched August with a weekly gain.

And while there were some signs of volatility returning to the secondary space, trading volumes remained thin outside of new issues.

The first new paper of August was mixed in secondary trading with Charter Communications, Inc. subsidiary CCO Holdings, LLC’s newly priced 6 3/8% senior notes due 2029 (B1/BB-) falling below par while Advisor Group Holdings, Inc.’s 8 5/8% senior secured notes due 2027 (B2/B-/B) held onto the strong gains made after breaking for trade.

While trading volumes were light outside of the new paper, some outstanding issues were in the spotlight following earnings.

Carvana Co.'s senior notes (Caa2/CCC+) added to their strong pre-earnings gains with the report better than expected.

Patagonia withdraws

Patagonia Holdco LLC cleared the active forward calendar on Friday as it withdrew from the market a struggling $500 million offering of secured notes (B1/B+), and shifted the proceeds to its concurrent bank loan.

Early on, the deal backing Stonepeak’s $2.7 billion acquisition of Lumen Technologies' Latin American operations was guided at a deep discount in the 86 area. However, as the deal failed to gain traction a significantly deeper price discount in the low 80s was contemplated, sources said.

Dealers also slashed pricing on the concurrent term loan, which was upsized to $1.3 billion from $800 million. The loan priced at 82, down from earlier discount talk of 90.

The bond deal, which came with an emerging markets cache, initially attracted some interest among high-yield investors who were facing an otherwise empty new issue calendar and a primary market that had been running on fumes since early June, however that interest faded as the deal was in the market, sources said (see related story in this issue).

Away from Patagonia, the first week in August saw a $2 billion burst of issuance as Advisor Group and Charter raised a combined $2 billion in Thursday drive-bys that both came upsized in tight executions.

Charter below par

CCO Holdings’ 6 3/8% senior notes due 2029 sank below par in active trading on Friday on a weak day.

While the 6 3/8% notes were trading with a slight premium on Thursday’s break, they sank to a 99-handle in heavy volume on Friday, sources said.

The notes were changing hands in the 99 3/8 to 99 5/8 context heading into the market close.

There was $91 billion in reported volume.

The notes priced tight after a strong rally in credit and met a weak tape on their first full trading session, a source said.

CCO Holdings priced an upsized $1.5 billion, from $1 billion, issue of the 6 3/8% notes at par in a Thursday drive-by.

The yield printed at the tight end of yield talk in the 6½% area.

The deal entered the market through reverse inquiry and played to $4 billion of demand during bookbuilding, a source said.

Advisor Group holds gains

Advisor Group’s 8 5/8% senior secured notes due 2027 held onto the strong gains made after breaking for trade the previous session, despite the weakness in the market.

While the notes traded as low as par 1/8 early in the session when selling was at its peak, they reclaimed their previous level as the market regained its footing.

The notes were changing hands in the 101¾ to 102 context heading into the market close with the yield just north of 8%, a source said.

There was $78 million in reported volume.

While the notes priced on the tight end of talk, they came cheap to the B index, were secured and carried a short duration, a source said.

Advisor Group priced an upsized $500 million, from $475 million issue, of the 8 5/8% notes in a Thursday drive-by.

The yield printed tighter than the 8¾% to 9% yield talk.

The deal, which was also driven to the market by reverse inquiry, was heard to have played to around $1 billion of demand.

Carvana’s earnings

Carvana’s senior notes added to their strong rally over the past week with earnings coming in better than expected.

The used car e-commerce company’s 10¼% senior notes due 2030 gained another 1 point despite the weakness in the market.

The notes rose to an 87-handle and were changing hands in the 87¼ to 87½ context heading into the market close.

The yield on the notes fell to about 12 7/8%.

The notes have climbed more than 4 points on the week as optimism surrounding earnings grew.

Carvana’s 5 5/8% senior notes due 2025 also rose 1 point to close the day at 82½ for a yield of about 12½%.

The notes have also risen about 4 points on the week.

The company’s earnings announcement reported a net loss of $439 million, which narrowed from the previous quarter, and an uptick in car sales.

Fund flows

The dedicated high-yield bond funds had $793 million of net daily inflows on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $553 million of inflows on the day.

Actively managed high-yield funds saw $240 million of inflows on Thursday, the source said.

News of Thursday's daily flows trails a Thursday report that the combined funds saw $2.93 billion of net inflows in the week to the Wednesday, Aug. 3 close, according to Refinitiv Lipper.

That brings total net inflows for the past two weeks to $7.8 billion, the largest amount of inflows for that interval since June 2020, the source said.

The month of July, during which the combined funds saw $5.8 billion of net inflows, was the first month of 2022 in which the dedicated high-yield bond funds saw positive flows, according to the market source who added that year-to-date flows for the combined funds were negative $37.4 billion at Thursday's close.

Indexes

The KDP High Yield Daily index fell 21 points to close Friday at 57.13 with the yield 6.51%.

The index gained 17 points on Thursday, 6 points on Wednesday, fell 13 points on Tuesday and gained 8 points on Monday.

The index posted a weekly loss of 3 points on the week.

The ICE BofAML US High Yield index fell 26.5 basis points with the year-to-date return now negative 8.388%.

The index rose 31.5 bps on Thursday, 14.4 bps on Wednesday, 7 bps on Tuesday and 22.2 bps on Monday.

The index posted a cumulative gain of 75.1 bps on the week.

The CDX High Yield 30 index rose 24 bps to close Friday at 101.42.

The index gained 27 bps on Thursday and 54 bps on Wednesday after falling 42 bps on Tuesday and 27 bps on Monday.

The index posted a cumulative gain of 36 bps on the week.

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