Junk secondary closes April with negative 8% returns; Carvana dives; Diebold carnage continues

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 29 – There was radio silence on Bioventus LLC’s $415 million offering of five-year senior notes (Caa1/CCC+) on Friday, the sole deal on the domestic high-yield primary market’s forward calendar, which was expected to clear before the week drew to a close.

The primary market went cold as the secondary space saw a brutal close to a turbulent month as investors shed risk following the latest slew of disappointing earnings reports.

The Federal Reserve’s Open Market Committee meeting will occur next week with a 50 basis points rate increase widely anticipated.

Recession is very much on the mind of nervous investors who fear the Federal Reserve will have no choice but to throw the economy into a recession to stem the tide of out-of-control inflation, sources said.

Disappointing earnings with lowered guidance are further fanning the flames of recession concerns.

The ICE BofAML US High Yield index sank another ½ point with year-to-date returns now negative 8%.

“And the Fed hasn’t even done anything yet,” a source previously said of the heaviness in the market.

Losses continued to mount for Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) with the notes now 3 points below their issue price two days after breaking for trade.

Carnage continued in Diebold Nixdorf, Inc.’s capital structure with the 8½% senior notes due 2024 (Caa2/CCC) again falling double digits during Friday’s session.

The 8½% notes have plummeted more than 30 points over the past week as investors flee the name ahead of earnings.

Friday’s primary

In Friday's dollar-denominated primary market, Bioventus was expected to price a $415 million offering of five-year senior notes (Caa1/CCC+), talked Thursday to yield 9¾% to 10%, slightly wide to initial guidance in the mid-to-high 9% area.

The company's debut deal, it had been expected to price following close of books which had been scheduled to take place midday Thursday.

There was no fresh news on Friday, sources said.

A portfolio manager who sat in on the roadshow passed on the Bioventus bond offer, professing a belief that the deal from the North Carolina-based supplier of pain treatments, restorative therapies and surgical solutions appeared better suited to the convertibles market.

The investor also pointed to the five-year non-call-two structure, noting that if everything goes well investors are likely to be taken out of the paper in two years, and added that two years seems like a meager amount of time to clip coupons in exchange for doing the work on the deal.

Meanwhile, in the European market, Miller Homes ended an issuance drought in the European high-yield bond market stretching back more than 10 weeks, on Friday, as it priced £815 million equivalent of senior secured notes (B1/B+/BB-) in two tranches (see related story in this issue).

The prospects for a pickup in new issue activity in the near term are not readily apparent, a New York-based bond trader said on Friday, but added that there is almost certainly cash on the sidelines looking for a home in the calendar.

Issuers that come to the primary market, these days, must come with wide open wallets, prepared to pay up, the source said, noting that there is a tendency for price talk to move higher while deals are in the market.

Investors now have the initiative when talk turns to pricing, so the 2022 new issue market has not exactly been an issuer-friendly place, the trader observed.

Along with volatility in stock markets around the globe, and central bankers telegraphing ever more hawkish policies with respect to benchmark rates, at least two high-yield market sources made reference, on Friday, to escalating geopolitical tensions which, they say, the markets may have to reckon with sooner than later.

Russian president Vladimir Putin may be backed into a corner in Russia's invasion of the Ukraine because of missteps and miscalculations, the trader said, adding that Putin appears poised to choose a strategy of military escalation in response to outside support for his Ukrainian adversaries, from NATO and others.

Putin might easily elect to ramp up the global scale of the conflict, the trader said.

Such a move could come on May 9, a high-profile Russian holiday when Russia celebrates the anniversary of its victory in the Patriotic War over Nazi Germany, in 1945, according to the bond trader who has been having conversations with clients about the various contingencies.

Putin, the trader noted, has sounded anti-Nazi themes in explaining the Ukrainian venture to the Russian people.

A big escalation of the war in Central Europe is probably not priced into the market, the trader said.

Carvana breaks down

Carvana’s recently priced 10¼% senior notes due 2030 sank further on Friday with the notes now 3 points below their issue price two days after breaking for trade.

The 10¼% notes were down 2 points on Friday.

They were changing hands in the 96¾ to 97 context heading into the market close, according to a market source.

There was $58 million in reported volume.

In a deal that met with pushback during bookbuilding, Carvana priced an upsized $3.275 billion, from $2.275 billion, issue of the 10¼% notes at par on Wednesday.

The used car e-commerce company is an iffy credit and the CCC index has been particularly hard hit as investors shed risk, a source said.

The yield on the CCC index was just shy of 11% as of Wednesday’s close, according to a BofA Global Research report.

Diebold carnage continues

Carnage continued in Diebold Nixdorf’s capital structure as investors fled the name ahead of earnings.

The banking solutions company’s 8½% senior notes due 2024 plummeted another 10 points on Friday to close the day at 66, according to a market source.

There was $14 million in reported volume.

The notes opened the week on a 92-handle.

The 9 3/8% senior secured notes due 2025 fell another 2½ points to close Friday at 88¾, according to a market source.

There was $10 million in reported volume.

The 9 3/8% notes were on a 98-handle at the start of the week.

Diebold’s senior notes cratered following industry peer NCR Corp.’s earnings report.

Investors were fleeing the name in anticipation of a disastrous earnings report, a source said.

Diebold will report earnings on May 10.

Fund flows

High-yield ETFs sustained $380 million of daily cash outflows on Thursday, according to a market source.

Actively managed high-yield funds saw $95 million of outflows on the day.

News of Thursday's daily flows follows a Thursday afternoon report that the combined funds sustained $118 million of net outflows in the week to the Wednesday, April 27 close, according to fund tracker Refinitiv Lipper.

Indexes

The KDP High Yield Daily index fell 32 points to close Friday at 58.71 with the yield 6.39%.

The index was down 7 points on Thursday, 12 points on Wednesday, rose 2 points on Tuesday and shaved off 9 points on Monday.

The index posted a cumulative loss of 62 points on the week.

The ICE BofAML US High Yield index sank 46.9 basis points with the year-to-date return now negative 8.003%.

The index fell 16.2 bps on Thursday, 16.9 bps on Wednesday, was up 13.4 bps on Tuesday and was down 18.3 bps on Monday.

The index posted a cumulative loss of 84.9 bps on the week.

The CDX High Yield 30 index broke to a 101-handle to post its lowest close of the year.

The index sank 66 bps to close Friday at 101.58.

The index was up 23 bps on Thursday, was down 23 bps on Wednesday and 96 bps on Tuesday after gaining 46 bps on Monday.

The index posted a cumulative loss of 117 bps on the week.

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