Carvana bonds mixed in strong volume; Lumen disappoints; Bausch mostly unchanged

By Cristal Cody

Tupelo, Miss., Feb. 24 – Carvana Co.’s paper saw mixed reaction in heavy trading on Friday in the first session after the distressed online car retailer reported heavy fourth-quarter and fiscal 2022 losses.

The name topped lists of the most active distressed issuers in the secondary market, a source said.

Carvana’s 10¼% notes due 2030 (Caa2/CCC) shot to the top of secondary action with the issue more than ¾ point better on $21 million of trading.

Market tone stayed soft on Friday with stock indices down across the board. The S&P 500 index closed off 1.05%.

The iShares iBoxx High Yield Corporate Bond ETF dropped 45 cents, or 0.6%, to $74.17.

The CBOE Volatility index rose 3.6% to $21.90.

Lumen Technologies, Inc.’s paper has been under pressure, along with its credit default swap spreads, since the issuer posted quarterly earnings results earlier in February.

Lumen’s 4½% senior notes due 2029 (B2/B+) made it out of the 40s to a 50 bid handle by midweek but remained soft after dropping about 6 points in the previous week. The bonds were not seen in active trading on Friday, a source said.

Lumen investors are starting to chafe at the low price with the Denver-based telecommunications company’s bonds being jeered in a Twitter post this week that saw more than 30,000 views.

Junkbondinvestor@junkbondinvest struck a chord with a post on Tuesday about Lumen’s unsecured bonds trading in the 40s and yielding 19%. The notes are “still rated B2/B by Moody’s/S&P and BB by Fitch lol,” the investor noted.

The post attracted responses that continued through Thursday’s session with cautions to “never buy hy telecom debt” and “B2/B is short for ‘bad to bondholders.’”

Another investor Tweeted that he is the “unfortunate owner of LUMN bonds and cannot fathom the market’s reaction to earnings.”

On Thursday, blueflowers@valuedelay noted in a reply: “Bonds yielding 19% and still $3.6Bn market cap? You don't see that every day.”

Raymond James & Associates, Inc. analyst Frank Louthan maintained a sell rating on the company following Lumen’s fourth-quarter earnings report this month.

“Arguably, the results in 4Q22 were a crap shoot vs. estimates given the divestitures and the reset button that management is implementing,” according to a Feb. 8 note. “The guide is disappointing, but effectively a kitchen sink year as management tries to right-size the business. The investments to be able to win (while necessary) come at a cost that will likely keep investors away in the near-to-medium term.”

Lumen’s CDS spreads widened 97 basis points over the past week ended Wednesday to 1,470 bps, according to a Moody’s Investors Service note.

In other activity, Bausch Health Cos. Inc.’s notes were little changed in light trading on Friday following a downgrade from S&P Global Ratings.

Carvana bonds mixed

Carvana’s 10¼% senior notes due 2030 (Caa2/CCC) traded up more than ¾ point to the 57 bid area and yielding around 22% on $21 million of paper changing hands, a source said.

The 10¼% notes were going out Friday more than 2 points better from the same session a week ago when the issue traded at 55¼ bid.

The company’s 5½% senior notes due 2027 (Caa2/CCC) also rallied over 3¼ points on Friday to 47½ bid and a 27½% yield in light trading that totaled $2.7 million.

Meanwhile, Carvana’s 5 5/8% senior notes due 2025 (Caa2/CCC) sank 12¾ points over the session to 42¾ bid and yielding 45% on $8.4 million of volume.

Carvana’s 4 7/8% senior notes due 2029 (Caa2/CCC) were down ½ point at 43 bid and a 21½% yield on $9.3 million of trading.

The 5 7/8% senior notes due 2028 (Caa2/CCC) also gave back 1 point to head out at 43¼ bid and a 25% yield on $5 million of supply on Friday, the source said.

Carvana reported after the markets closed on Thursday heavy fourth-quarter and fiscal 2022 losses.

The Phoenix-based online car retailer’s stock sank more than 20% to close Friday at $8.01.

Bausch Health eyed

Bausch Health’s 11% senior secured notes due 2028 (Caa1/B-) traded 1/8 point higher at 77 5/8 bid during the session, a source said.

Trading supply was light at $2.9 million.

S&P downgraded the company to SD from CCC+ on Friday following Bausch’s announcement that it repurchased about $446 million of senior secured and senior notes for $250 million of cash in the fourth quarter, an event it considers distressed.

Bondholders received 47 cents to 68 cents on the dollar, depending on the tranche, S&P said.

The Laval, Quebec-based pharmaceutical company on Thursday reported fourth-quarter and fiscal 2022 losses.

Distressed index jumps

S&P U.S. High Yield Corporate Distressed Bond index one-day returns climbed to 0.82% on Thursday from 0.03% on Wednesday and minus 0.91% on Tuesday.

Month-to-date returns rose to 0.44% from minus 0.38% mid-week and minus 0.41% at the start of the short holiday week.

Quarterly and year-to-date total returns improved to 8.46% on Thursday from 7.58% on Wednesday and 7.54% on Tuesday.

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