Junk returns plummet past negative 9%; Endo craters; DISH falls post-earnings

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 6 – The domestic high-yield primary market remained quiet on Friday with the only deal on the forward calendar withdrawing their offering earlier in the week due to market conditions.

Market conditions remained ugly on Friday with losses continuing to mount.

Friday’s better-than-expected non-farm payroll report helped fuel the flight from risk assets with the numbers supporting the Federal Reserve’s aggressive tightening schedule, a source said.

The cash bond market was off another ¾ point with credit spreads continuing to widen and returns plummeting below negative 9%.

However, trading activity on Friday was extremely thin with the exception of one name.

Endo International plc’s senior notes cratered in heavy volume following the drug maker’s earnings report.

Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) remained active with the notes hitting a new low after almost clawing their way back to par earlier in the week.

DISH Network Corp.’s capital structure was also taking a hit after the satellite broadcaster reported earnings with the company’s senior notes falling 3 to 4 points.

Primary eyed

Nearly all of the week's new issue news came out of the European market.

The week came and went with no dollar-denominated deals pricing.

The most recent primary market news came last Tuesday when Bioventus Inc. cited market conditions as it withdrew its $415 offering of five-year senior notes (Caa1/CCC+), which would have represented the company's high-yield bond market debut.

The dollar-denominated active forward calendar remained empty heading into the weekend.

Noting that the yield to worst in the ICE BofAML US High Yield Constrained Index opened Friday at 7.2%, up a hefty 0.39% from 24 hours previous, a sellside source remarked that at the moment the junk bond market can't look very attractive to prospective issuers.

Others, however, assert that a rebound is near at hand, insisting that junk is oversold.

There's still a fair deal to be had for the right issuer, a syndicate banker asserted on Friday afternoon.

A middle-of-the-fairway deal from a known issuer with decent credit ratings will attract a crowd because there is still cash looking for a home on a reactivated calendar, the source added.

However, this may not be the market for lower rated deals from the media and cable space or satellites or building products, the banker said.

Endo craters

Endo’s senior notes fell further into distressed territory as the company’s capital structure cratered post-earnings.

The 7½% senior notes due 2027 (B3/B-) fell more than 5 points to close the day at 79¼ with a yield of 13½%, according to a market source.

There was $111 million in reported volume.

The 9½% senior notes due 2027 (Caa2/CCC-) sank 25 points to close the day at 34¼ with a yield of 40¾%.

There was $85 million in reported volume.

The 6 1/8% senior notes due 2029 fell 4¼ points to close the day at 77.

There was $55 million in reported volume.

Endo’s earnings report sank its capital structure with the company’s stock closing the day down 29.70%.

The company’s senior notes were for sale after issuing weak guidance.

Carvana’s new low

Carvana’s recently priced 10¼% senior notes due 2030 continued to dominate activity in the secondary space with the notes hitting a fresh low after almost reclaiming par earlier in the week.

The 10¼% notes traded as low as 95½ in intraday activity but closed the day on a 96-handle.

They were changing hands in the 96¼ to 96¾ context heading into the close.

The notes traded as high as 99½ bid, par offered on Wednesday as risk assets skyrocketed on after Federal Reserve chair Jerome Powell’s press conference.

However, the notes quickly gave back their gains and broke through their previous lows as selling pressure returned to the market.

Carvana is an iffy credit with negative EBITDA.

And the $3.275 billion issue with a hefty coupon will be a difficult debt to service, a source said.

DISH falls

DISH’s capital structure was also taking a hit after the satellite broadcaster reported earnings with its senior notes falling 3 to 5 points.

DISH’s 7¾% senior notes due 2026 (B3/B) were off 4 7/8% to close Friday at 89¼ with the yield now 11%.

The 5 1/8% senior notes due 2029 (B3/B) fell 4¾ points to close the day at 77¼ with a yield of 10 7/8%.

The 5¼% senior notes due 2026 (Ba3/B+) were down 3½ points to close the day at 87¾ with a yield of 8½%.

DISH’s capital structure was taking a hit after the company reported an earnings miss and a loss of subscribers, a source said.

Fund flows

The combined funds saw $1.1 billion of net outflows in the week to the Wednesday, May 4 close, according to Refinitiv Lipper.

Those represented the fourth consecutive weekly outflows from the junk funds, the market source noted.

Year-to-date outflows from the dedicated high-yield funds now come to $33.5 billion, the second largest annual total on record, trailing 2018's $46.9 billion, according to the source.

The massive migration of cash back into high yield during 2020 has now been completely unwound, the source said.

Indexes

The KDP High Yield Daily index sank 51 points to close Friday at 57.82 with the yield now 6.59%.

The index was down 29 points on Thursday, rose 14 points on Wednesday and 13 points on Tuesday, and sank 36 points on Monday.

The index posted a cumulative loss of 89 points on the week.

The ICE BofAML US High Yield index sank 64.4 bps with year-to-date returns now negative 9.15%.

The index was down 13.4 bps on Thursday and 6.6 bps on Wednesday, rose 28.2 bps on Tuesday and fell 58.5 bps on Monday.

The index posted a cumulative loss of 114.70 bps on the week.

The CDX High Yield 30 index broke below a 101-handle.

The index was down 76 bps to close Friday at 100.83.

The index sank 124 bps on Thursday after gaining 50 bps on Wednesday, 50 bps on Tuesday and 24 bps on Monday.

The index posted a cumulative loss of 76 bps on the week.

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