Carvana on deck; secondary volatile; Twitter jumps on takeover; Gap losses mount

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 25 – Monday brought the announcement of a well-telegraphed supersize offering of junk bonds coming to support an acquisition.

Carvana Co. took the wraps off of a $2.275 billion single-tranche offering of eight-year senior notes (Caa2/CCC+), in the market with 10% to 10½% initial guidance.

Dealers began canvassing the market with the Carvana offer mid-to-late last week, and the books are expected to close late Tuesday, said a sellside source.

The company did a lot of one-on-one calls with investors on Monday, and late in the day the bond deal was heard to be playing to $1.75 billion of demand, the sellsider said.

The Carvana 5 7/8% senior notes due Oct. 1, 2028, which ostensibly have around 20 months less maturity risk than the new deal (assuming the bonds print with a maturity in May 2030) changed hands at 83 (implying a 9.46% yield to worst) in round lot trading on Monday afternoon, according to the sellsider.

So the market is parsing a deal where an investor gets a little more than 100 basis points versus the yield implied by the current trading level of the 2028 paper, for shouldering slightly less than 20 more months of duration risk.

And the dealer is signaling to accounts that the new Carvana notes due 2030 will not be sold at a discount.

Elsewhere the European high-yield new-issue bourse generated news for the first time in 10 weeks, on Monday, when Edinburgh, Scotland-based home builder Miller Homes announced an £815 million equivalent offering of senior secured notes (B1/expected B+/expected B+) in two benchmark tranches.

The deal, coming to take out the bridge loan backing the buyout of the company by Apollo, features a sterling-denominated tranche of seven-year fixed-rate notes and a euro-denominated tranche of six-year floating-rate notes, and is expected to price this week.

Monday marked another topsy-turvy day for risk assets with the high-yield secondary space opening the day down 1/8 to ¼ point but closing with a ½ point gain.

“This is a crazy market,” a source said.

While the market was weak in the morning, several offers-wanted-in-competition lists were circulating from real-money accounts and exchange-traded funds with opportunistic buyers reentering the space, a source said.

However, trading activity remained light with the exception of one name.

Twitter, Inc.’s senior notes (Ba2/BB+) dominated activity in the secondary space on Monday with the notes rising 2 to 3 points following news Tesla Inc. chief executive officer Elon Musk’s takeover bid for the company was successful.

While the market was stronger on Monday, Gap, Inc.’s 3 5/8% senior notes due 2029 (Ba3/BB) continued to sink in active trading.

Friday outflows

The dedicated high-yield bond funds sustained $791 million of net daily outflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $706 million of outflows on the day.

Actively managed high-yield funds saw $85 million of outflows on Friday, the source said.

Year to date the combined funds have sustained $32 billion of outflows, already the second largest annual total of negative flows, the source said.

The record annual outflow is 2018's $46.9 billion.

The $32 billion of year-to-date outflows now totally unwinds the inflows of 2020, the market source said.

Twitter’s buyout

Twitter was the name of the day on Monday as news broke mid-session the social media company had accepted Musk’s buyout offer for the company.

Twitter’s 5% senior notes due 2030 and 3 7/8% senior notes due 2027 rose 2 to 3 points respectively on the news.

The 5% notes again jumped above par. They were changing hands in the par ¼ to par ¾ context heading into the market close, a source said.

There was $53 million in reported volume.

The 3 7/8% senior notes climbed to a 99-handle and were changing hands in the 99 to 99½ context heading into the market close.

There was $23 million in reported volume.

In a surprise about face, market players awoke to headlines that Twitter and Musk were zeroing in on a deal.

The deal was announced mid-session with Twitter agreeing to Musk’s offer to take the company private for $54.20 a share in a deal that values the company at $44 billion.

Twitter had taken defensive measures the previous week to block Musk’s takeover effort.

However, the company may have capitulated after Musk announced he had lined up $46 billion in financing to support his effort.

The deal may trigger a change of control put with the notes trading up to their takeout price, a source said.

Gap down

Gap’s 3 5/8% senior notes due 2029 continued their downward spiral on Monday despite a firm day for the market.

The 3 5/8% notes fell another 1 point to close the day at 92½, according to a market source.

There was $12 million in reported volume.

The notes sank 4 points on Friday after the clothing retailer lowered its forward guidance ahead of earnings and announced the exit of the CEO of its Old Navy division.

Retailers, in general, have been hard hit by rising inflation, a source said.

Gap is scheduled to report earnings on May 26.

Indexes

The KDP High Yield Daily index shaved off 9 points to close the day at 59.2 with the yield now 6.22%.

The index posted a cumulative loss of 81 points on the week last week.

The ICE BofAML US High Yield index fell further below the negative 7% threshold.

The index shaved off 18.3 bps with the year-to-date return now 7.337%.

The index posted a cumulative loss of 83.7 bps on the week last week.

The CDX High Yield 30 index gained 46 bps to close Monday at 103.20.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.