Mineral Resources, Carvana price; Twitter softens; NCR down; Diebold Nixdorf tanks

By Paul A. Harris and Abigail W. Adams

Portland, Me., April 27 – Amid tumult involving its recently disclosed earnings and its steadily tumbling share price Carvana Co. came with a big surprise on Wednesday as it massively upsized what had been heard to be a struggling junk-bond deal, market sources said.

The Tempe, Ariz.-based online car retailer priced an upsized $3.275 billion issue (from $2.275 billion) of eight-year senior notes (Caa2/CCC) at par to yield 10¼%, on top of talk and in the middle of the 10% to 10½% early guidance.

Just as it appeared that the company would not be able to get the deal done south of 11%, Carvana's notes offer underwent a reversal of fortune as Apollo Global Management Inc. agreed to take down $1.6 billion of the deal at 10¼%, sources said.

Apollo was one of two anchor orders in the deal, according to a sellside source, who did not identify the other one.

Away from those anchors the order book was heard to be so-so, the source added.

People were concerned about credit indentures that may be amended by holders of half of the debt, the sellsider said, adding that Apollo's share, alone, amounts to just shy of half.

The market also anticipates the Carvana will be back in the new-issue market sometime next year.

Early trading levels seemed to bear out some misgivings, as the new Carvana 10¼% notes due May 2030 traded down on the break, according to the sellside source who had them, generically, at 99 1/8 bid, 99½ offered.

Elsewhere, in a deal that saw much smoother sailing, Australia-based Mineral Resources Ltd. priced an upsized $1.25 billion amount (from $1 billion) of senior notes (Ba3/B+/BB) in two tranches.

It featured a $625 million tranche of 5.5-year notes that priced at par to yield 8%. The yield printed at the tight end of both yield talk and initial guidance, which were both set at 8% to 8¼%.

Mineral Resources also priced a $625 million tranche of eight-year notes at par to yield 8½%. Again, the yield printed at the tight end of both yield talk and initial guidance, which were both set at 8½% to 8¾%.

Mineral Resources was very well received, according to the sellside source, who added that the notes offer was heard to be playing to $3.5 billion of orders, across both tranches, at around 1 p.m. ET on Wednesday.

With Carvana and Mineral Resources having cleared the market, just one dollar-denominated deal remains on the active forward calendar.

Debut issuer Bioventus LLC is marketing a $415 million offering of five-year senior notes (Caa1/CCC)+.

Pending official talk the early guidance is in the mid-to-high 9% area.

The deal, which is heard to be playing to significant reverse inquiry, is set to price Thursday.

Meanwhile, it was another weak day in the secondary space with the CDX index set to break below a 102-handle after trading on a 104-handle late last week.

“That’s a huge move in just a few sessions,” a source said.

Selling in the secondary space has intensified as investors digest mixed earnings reports and grapple with the prospects of a coming recession – something that may be inevitable in order to reign in inflation.

However, selling activity has been concentrated in ETFs and the CDX index with the cash bond market holding up comparatively well.

There is a reluctance to sell due to the illiquidity of the market, a source said.

Market players are more likely to short the CDX index or ETFs during a market downturn then sell a bond and risk not being able to repurchase it.

Twitter, Inc.’s senior notes (Ba2/BB+) were softer in active trading on Wednesday as questions arose about the financing of Elon Musk’s takeover of the company.

NCR Corp.’s capital structure was under pressure after disappointing earnings with the ATM kiosk provider’s senior notes falling 2 to 3 points.

However, industry peer Diebold Nixdorf, Inc.’s senior notes tanked with the financial transactions company’s 8 ½% senior notes due 2024 (Caa2/CCC) falling double digits.

Fund flows

The daily cash flows of the dedicated high-yield bond funds were essentially flat, with the flows of one cohort pretty much cancelling out those of the other on Tuesday, the most recent session for which data was available at press time, according to a market source.

Actively managed high-yield funds sustained $98 million of outflows on the day.

However high-yield ETFs saw $77 million of inflows on Tuesday, the source said.

Among other eye-catching market metrics that circulated on Wednesday, the yield to worst of the triple C segment of high-yield indexes topped 10% for the first time for the first time since September 2020, sources said.

Twitter softens

Twitter’s senior notes were coming in on Wednesday after a large bounce the previous two sessions following news Elon Musk’s takeover bid for the company was successful.

After climbing to a 103-handle on Tuesday, Twitter’s 5% senior notes due 2030 were down about ¾ point during Wednesday’s session.

The 5% notes were changing hands in the 102¾ to 103¼ context heading into Wednesday’s close.

The notes continued to see heavy volume with $37 million in reported volume.

Twitter’s 3 7/8% senior notes due 2027 fell back below par.

The notes were down about 1 point and were changing hands in the 99 3/8 to 99 7/8 context heading into the market close.

In addition to a down day for the market, questions have arisen about Musk’s $21 billion equity commitment promised to finance the deal.

The leveraged buyout deal will also triple Twitter’s current leverage and increase its annual interest payments from the current $51 million to $845 million, which would drag down the company’s credit rating, The Wall Street Journal reported.

Moody's Investors Service and S&P have already placed the company on watch for a downgrade.

While softer on Wednesday, Twitter’s 5% senior notes due 2030 and 3 7/8% senior notes due 2027 have still gained 5 and 3 points respectively on the week.

Once complete, the takeover will trigger a 101 change of control put, which holders of the notes may or may not choose to exercise.

While the notes also carry a make-whole call, Twitter is unlikely to use that option due to the expense involved.

If called, the redemption value of the 5% notes, which were issued in February, would be around 110, a source said.

However, the company may negotiate a tender offer with holders rather than leave the notes outstanding, a source said.

Short-duration, yield-to-call buyers have been chasing the notes.

ATMs under pressure

Financial transactions companies were the major losers of Wednesday’s session with NCR’s earnings report dragging down industry peer Diebold Nixdorf.

NCR’s senior notes were off 2 to 3 points following its first quarter earnings report.

The 5 1/8% senior notes due 2029 (B3/B+) were off about 3 points.

The notes were changing hands in the 91½ to 92 context on Wednesday after trading on a 94-handle heading into earnings.

The 5% senior notes due 2028 were down about 2 points to close the session at 92½.

The ATM kiosk provider has five tranches in its capital structure.

Following earnings, each tranche was yielding about 6.5%, a source said.

While NCR was under pressure following earnings, the results tanked industry peer Diebold Nixdorf’s senior notes.

Diebold’s 8½% senior notes due 2024 fell 13 points on Wednesday.

The notes closed Wednesday at 78¼ with a yield of 22.864%.

There was $12 million in reported volume.

The banking solutions company’s 9 3/8% senior secured notes due 2025 sank 4 ¾ points to close Wednesday at 92¾.

The yield on the notes was 12.156%.

“The whole industry is under pressure,” a source said.

Indexes

The KDP High Yield Daily index fell 12 points to close Wednesday at 59.1 with the yield now 6.25%.

The index rose 2 points on Tuesday and shaved off 9 points on Monday.

The ICE BofAML US High Yield index fell 16.9 bps with the year-to-date return now 7.372%.

The index gained 13.4 bps on Tuesday after shaving off 18.3 bps on Monday.

The CDX High Yield 30 index was down 23 bps to close Wednesday at 102.01.

The index fell 96 bps on Tuesday after gaining 46 bps on Monday.

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