Frontier prices, existing notes drop; selling pressure continues; Party City drops; Carvana hits new low

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 9 – Frontier Communications had the spotlight to itself in the dollar-denominated high-yield primary market on Monday.

The telecom, which exited bankruptcy just a little over a year ago, priced an upsized $1.2 billion issue (from $800 million) of eight-year first lien secured notes (B3/B/BB+) at par to yield 8¾% in a drive-by.

The yield printed at the tight end of the 8¾% to 9% yield talk. Initial guidance was in the 9% area.

The deal was playing to around $4.4 billion of demand at the close of books, according to a sellside source.

Frontier's new first lien notes priced with 2¾% % more coupon than the Frontier Communications Holdings, LLC/Frontier Communications Parent, Inc. 6% second lien notes due January 2030, which priced last October at par, the sellsider recounted.

During Frontier's Monday drive-by the market had a weather eye on how that existing paper would trade in light of the fact that the company was coming with a new bond with superior security and a much higher coupon.

Investors were keen to know what happens to an existing capital structure when the market undergoes drastic repricing and a company comes with a new deal that reflects the drastic price move.

In the case of Frontier's, its 6% second lien notes due 2030 fell 6½ points on Monday, to close around 80½, implying a 9.65% yield, the sellsider said.

Meanwhile, the new week brought new pain for risk assets with selling pressure continuing to drive the secondary space to new lows.

While losses continued to mount in the secondary, trading activity in the space remained thin with holders still reluctant to sell out of their positions, a source said.

However, names with weak earnings were the exception.

Party City Holdings Inc.’s 8¾% senior secured notes due 2026 (B3/B) dominated activity in the space with the notes falling double digits after the company reported a wider loss than anticipated.

Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) hit a new all-time low in active trading after nearly recouping its losses the previous week.

Frontier’s 6% senior notes due 2030 (Caa2/CCC+) were also taking a hit in active trading with the notes primed over by the telecommunication company’s latest offering.

Party over

Party City’s 8¾% senior secured notes due 2026 sank double digits in active trading after the party goods retailer announced disappointing earnings.

The 8¾% senior notes sank 10 7/8 points outright.

They were wrapped around 75 7/8 heading into the market close, according to a market source.

The yield on the notes jumped 446 bps to 17.831%.

The notes dominated activity in the secondary space with $74 million in reported volume.

Party City’s capital structure was under pressure after reporting a wider loss than anticipated.

The retailer reported a net loss of $26 million versus a net loss of $14 million at the end of the previous quarter.

EBITDA also decreased dramatically with adjusted EBITDA of $4.6 million versus adjusted EBITDA of $32 million the previous quarter.

The results mirror a broader trend in the retail sector, which has been hard hit by earnings, a source said.

Carvana’s new low

Carvana’s 10¼% senior notes due 2030 hit a new low on Monday after the company nearly eliminated its losses the previous week.

The 10¼% notes fell 3.5 points on Monday.

They briefly broke below a 93-handle to trade as low as 92 5/8.

However, the notes were changing hands in a 93 to 93¾ context heading into the market close, according to a market source.

There was $35 million in reported volume.

The used car e-commerce company closed Friday on a 97-handle after nearly trading up to par in last Wednesday’s brief rally.

The $3.275 billion issue, which priced at par on April 27, has been under water since breaking for trade.

The deal came amid heavy market conditions with CCC credits particularly hard hit as investors price in a possible recession.

Frontier down

Frontier’s 6% senior notes due 2030 (Caa2/CCC+) were taking a hit in active trading as the telecommunications company prepped its latest offering.

The 6% notes sank 6½ points to close Monday at 80½, according to a market source.

There was $16 million in reported volume.

The notes were now yielding 9.646%.

Frontier’s unsecured notes were taking a hit after the company announced a new offering of eight-year first-lien secured notes (B3//BB+).

The telecom’s unsecured notes of similar duration were getting “primed over” or pushed further down in the capital structure by the new offering, a source said.

Frontier priced a $1 billion issue of the 6% notes at par in October 2021 in its first pass at the high-yield market since emerging from bankruptcy in 2020.

Indexes

The KDP High Yield Daily index fell 52 points to close Monday at 57.3 with the yield now 6.78%.

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

The CDX High Yield 30 index fell 70 basis points to close Monday at 100.13.

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

Fund flows

The dedicated high-yield bond funds sustained $211 million of net outflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $141 million of outflows on the day.

Actively managed high-yield funds sustained $70 million of outflows on Friday, the source said.

© 2015 Prospect News.
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