Gap hits new low in junkland; Twitter rebounds; Plantronics gains on exchange offer amendment

By Paul A. Harris and Abigail W. Adams

Portland, Me., July 12 – The junk bond primary market was shifting its attention on Tuesday to an upcoming new-issue roadshow for $600 million of bonds from Cornerstone Building Brands, Inc.

Meanwhile, the secondary space was slightly firmer on Tuesday following a weak open with the cash bond market closing the day up 1/8 after starting down 1/8 of a point

The 10-year Treasury yield continued to come in on Tuesday, settling at 2.976%.

However, the yield curve continued to flash recession warnings with the inversion between the two-year and 10-year yields reaching its steepest level since 2007 in intraday activity.

While the secondary space ended the day with slight gains, trading activity remained muted as market players awaited the latest Consumer Price Index report and the first wave of second-quarter earnings.

Large, liquid issues and topical news remained the main drivers for activity in the space.

Gap, Inc.’s 3 7/8% senior notes due 2031 and 3 5/8% senior notes due 2029 (Ba3/BB) hit their lowest levels since pricing in September following the ouster of the clothing retailer’s chief executive officer and a downwardly revised earnings forecast.

Twitter, Inc.’s 5% senior notes due 2030 (Ba2/BB+) rebounded in light volume following Monday’s sell-off.

Plantronics Inc.’s 4¾% senior notes due 2029 (B2/B) bounced up to their poison put price after holders successfully forced HP Inc. to up the consent solicitation payment in its exchange offer.

Cornerstone

Bookrunners for Cornerstone’s new $1.01 billion of debt offerings, inclusive of $600 million of bonds, were setting the stage for a roadshow that will take place over the next five business days, starting Wednesday.

An investor call is set for 2 p.m. ET.

Deutsche Bank Securities Inc. and UBS Securities LLC are co-leading the buyout deal that support Clayton, Dubilier & Rice (CD&R)’s acquisition of the manufacturer of exterior building products.

The acquisition is expected to close in the second or third quarter of 2022.

Gap under pressure

Gap’s 3 7/8% senior notes due 2031 and 3 5/8% senior notes due 2029 hit their lowest level on Tuesday since pricing at par in September 2021 after the ouster of the clothing retailer’s top officer.

The 3 7/8% senior notes dropped 3 points to a 68-handle.

They were changing hands in the 68¼ to 68¾ context heading into the market close, a source said.

The notes closed the previous week at 72.

Gap’s 3 5/8% senior notes due 2029 also fell 3 points.

The notes were changing hands in the 69½ to 70½ context on Tuesday.

The notes were previously trading at 72½.

Gap announced the ouster of chief executive officer Sonia Syngal on Monday, marking the second top executive to leave the struggling retailer in recent months.

The CEO of Gap’s Old Navy brand abruptly left her post in late April.

In addition to announcing Syngal’s departure, Gap updated its second-quarter guidance with sales expected to decline in the high single-digit range, as previously anticipated, and the adjusted operating margin now expected to be flat to slightly negative.

Gap became the latest retailer to oust an executive due to disappointing sales and failed turnaround plans.

Bed Bath & Beyond Inc. announced the departure of its CEO after a disastrous earnings report in late June.

Bed Bath & Beyond’s senior notes have been on a strong downtrend since its late June earnings report with its 3.749% senior notes due 2024 now trading on a 30-handle.

The notes were trading at 71 prior to the release of earnings about two weeks ago.

Twitter rebounds

Twitter’s 5% senior notes due 2030 were on the rebound on Tuesday after news that Elon Musk was attempting to terminate the merger agreement sparked a sell-off in the notes.

The 5% notes reclaimed 1 point to trade up to a 94-handle.

The notes were changing hands in the 94¼ to 94¾ context in light volume on Tuesday, according to a market source.

The notes sank 2½ points on Monday on news Musk was attempting to terminate his $44 billion takeover of the company.

While Twitter’s notes were lower on Monday, the sell-off was not dramatic with Musk’s takeover over the company long in doubt, sources said.

Plantronics gains

Plantronics’ 4¾% senior notes due 2029 jumped to their poison put price on Tuesday after HP Inc. upped the consent solicitation payment in its exchange offer for the notes.

The 4¾% notes, which had been wrapped around par, traded up to 101 on Tuesday.

HP announced amendments on Tuesday to its $500 million exchange offer for the notes with HP now offering consent payments of $16 to $32 per $1,000 Poly note to amend the indentures governing the notes versus the initial consent payment of $2.50. (See related article in this issue.)

Bondholders who collectively held 80% to 85% of the outstanding amount of the 4¾% notes were organizing to reject HP’s initial exchange offer due to the low amount of the consent payment, Prospect News previously reported.

The notes carry a poison put of 101. However, the make-whole payment for HP to redeem the notes would be 104.

HP is currently offering early participants $1,000 in new HP notes that will carry the same coupon and maturity as the Poly notes with the 101 poison put included in the new notes and triggered upon the completion of the acquisition.

The consent payment will be $16 per $1,000 of the notes if all holders participate in the exchange or $32 per $1,000 if a simple majority participate.

The deadline to participate in the exchange was extended to July 28.

To receive the full exchange consideration, though, noteholders need to participate by 5 p.m. ET on July 14.

$563 million Monday outflows

The dedicated high-yield bond funds sustained $563 million of net daily outflows on Monday, according to a market source.

High-yield ETFs saw $423 million of outflows on the day.

Actively managed high-yield funds sustained $140 million of outflows on Monday, the source said.

The combined funds are tracking $757 million of net outflows on the week that will conclude with Wednesday's close, according to the market source.

Indexes

The KDP High Yield Daily index gained 8 points to close Tuesday at 55.37 with the yield now 7.24%.

The index rose 16 points on Monday.

The ICE BofAML US High Yield index gained 9.8 basis points with the year-to-date return now negative 12.452%.

The index was up 12.1 bps on Monday.

The CDX High Yield 30 index was down 17 bps to close Tuesday at 98.62.

The index fell 46 bps on Monday.

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