Tenneco, Cornerstone deals awaited; secondary quiet ahead of inflation data; Twitter falls; Carvana retests lows

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 11 – The high-yield primary market put up a goose egg on Monday, with no deals announced and no deals priced.

However, high-yield new-issue activity is brewing, according to sources who expect at least two deal announcements during the present week.

Pegasus Merger Co., an affiliate of Apollo Global Management, Inc., has been pre-marketing $2 billion of secured notes and $1 billion of unsecured notes backing the leveraged buyout of Tenneco Inc., by Apollo, sources say.

The market expects to hear an announcement on the notes, along with $2.4 billion of term-loan debt, during the present week.

And Cornerstone Building Brands Inc. is expected to show up with an offering of senior secured notes this week to address at least a portion of the refinancing of a $1,675,000,000 bridge loan put in place in early March to support the buyout of the company by Clayton, Dubilier & Rice.

Meanwhile, the secondary space launched the week on soft footing with the cash bond market down 1/8 to ¼ point, sources said.

While the market was soft, volume was light with few making moves ahead of the latest Consumer Price index report set for release on Wednesday.

Large, liquid issues and topical news remained the driving force of activity in the space.

Twitter, Inc.’s 5% senior notes due 2030 (Ba2/BB+) were under pressure after Elon Musk announced he was terminating his $44 billion takeover of the social media company.

Carvana Co.’s 10¼% senior notes due 2030 (Caa2/CCC) resumed their downtrend with the notes retesting their all-time lows after leveling off the previous week.

While the overall market was weak on Monday, Carnival Corp.’s senior notes (B2/B) were largely unchanged with selling pressure in the credit abating.

Twitter falls

Twitter’s 5% senior notes due 2030 led losses during Monday’s session following news Elon Musk was attempting to terminate his takeover of the social media company.

The 5% notes were down 2½ points to a 93 handle.

The notes were trading in the 93 to 93½ context with the yield about 6 1/8%, according to a market source.

While the notes were weaker on Monday, Musk’s takeover of the company has long been in doubt, sources said.

The 5% notes have been volatile surrounding Musk and Twitter’s takeover drama.

The notes jumped more than 5 points to trade as high as 102 in April after the merger agreement was announced.

However, the notes gave back all of their post-merger announcement gains by late May as questions arose about the financing of the deal and Musk stalled moving forward.

The 5% notes have traded in the 95 to 96 range for much of June.

Carvana retests lows

Carvana’s 10¼% senior notes due 2030 were retesting their lows amid weak market conditions on Monday.

The notes fell 1 point to return to an 81 handle, according to a market source.

They were changing hands in the 81 to 81½ context with the yield about 14¼%, according to a market source.

While the high-yield market was strong the previous week with buyers returning to the space, it did little to lift the 10¼% notes off their lows.

The notes were range-bound between 82 and 83 with CCC credits, in particular, under pressure despite the firmness in the overall market.

Investors have been cherry-picking their positions in the high yield market with higher-quality credits back in vogue as investors assess their recession risk.

Carnival level

Carnival’s senior notes were unchanged in active trading with selling pressure in the name abating as the market awaited more economic indicators to gauge the risk of recession.

Carnival’s 10½% senior notes due 2030 continued to trade on an 83 handle with the notes poised to close the day at 83¾ with the yield just shy of 14%.

The 6% senior notes due 2029 continued to trade on a 71 handle.

The notes were poised to close the day at 71 5/8 with the yield 12¼%.

Carnival’s senior notes were leveling off after heavy selling pressure over the past two weeks dragged the notes to new all-time lows.

Cruise lines have become de facto recession indicators, sources have said.

Indexes

The KDP High Yield Daily index rose 16 points to close Monday at 55.29 with the yield now 7.34%.

The index posted a cumulative gain of 61 points on the week last week.

The ICE BofAML US High Yield index gained 12.1 basis points with the year-to-date return now 12.55%.

The index posted a cumulative gain of 119.3 bps on the week last week.

The CDX High Yield 30 index fell 46 bps to close Monday at 98.79.

The index posted a cumulative gain of 226 bps on the week last week.

$353 million Friday inflows

The dedicated high-yield bond funds saw $353 million of net daily inflows on Friday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $323 million of inflows on the day.

Actively managed high-yield funds saw $30 million of inflows on Friday, the source said.

However year-to-date cash flows of the combined high-yield bond funds remain deep in the red at negative-$43.4 billion, according to the market source.

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