Coty, Morgan drive by in junk primary market; Carvana declines; funds add $373 million

By Paul A. Harris and Cristal Cody

Portland, Ore., July 19 – High summer finds the high-yield new issue market heating up.

The Wednesday session saw drive-by deals from Coty Inc. (a blowout, sources said) and Morgan Automotive.

Ontario Gaming GTA LP will close the books Thursday on a $400 million offering talked to yield in the 8¼% area.

And there were announcements of $1 billion-plus deals from Brand Industrial Services, Inc. and Frontier Communications Parent, Inc.

In the secondary, Carvana Co.’s bonds declined Wednesday, while its stock jumped 40.2% on the day after the online auto retailer reported strong second-quarter earnings, a $1 billion stock offering and plans to exchange its senior junk bonds.

Carvana’s 10¼% senior notes due 2030 (Ca/CCC-) dropped about 3¼ points over the session and were down 5 points on the week.

Frontier Communications Holdings LLC’s paper continued to recover Wednesday after Monday’s declines. The company’s 5% first-lien secured notes due 2028 were up 1¼ points.

High-yield exchange-traded funds saw $373 million of daily cash inflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

The Tuesday cash flows of the actively managed high-yield funds were absolutely flat.

The combined funds are tracking $2 billion of net inflows for the week that was set to conclude with Wednesday’s close, according to the market source.

Carvana notes decline

Some of Carvana’s notes remained stronger on the week after softening Wednesday following the announcements, a source said.

The 5 5/8% senior notes due 2025 (Ca/CCC-) were trading 2 points higher this week at 92 and a yield of 9¾%.

Carvana’s 10¼% notes dropped to 79 bid by the close Wednesday after improving over the morning.

The notes traded up more than 1 point to an 84 handle early in the session.

Carvana on Wednesday reported it had its best quarter on record.

The company also filed to sell $1 billion of its class A common stock, announced an exchange offer and agreement to eliminate more than 83% of its senior notes and reduce its total outstanding debt by more than $1.2 billion and started a tender offer to purchase some of its 2025 notes.

Carvana plans to exchange its existing senior notes for up to $4.38 billion in three tranches of new notes.

Frontier extends gains

Frontier’s 5% first-lien secured notes due 2028 (B3/B) were up 1¼ points at 86 going out Wednesday, a market source said.

On Tuesday, the bonds traded 1¾ points better at 84¾ bid.

The company’s paper was under pressure on Monday with other telecom issuers following a report from the Wall Street Journal over potential liability and regulations from leaking lead cables, sources said.

Frontier’s bonds declined around 4 points on Monday.

Indexes

The KDP High Yield Daily index softened Wednesday to close at 50.97 with a yield of 7.18%, compared to 51.06 and a 7.14% yield on Tuesday.

The index was up from where it finished Monday at 50.94 with a 7.19% yield.

The index posted a cumulative gain of 81 points in the prior week.

The CDX High Yield 30 index rose to 103.16 on Wednesday from 103.14 on Tuesday and 102.95 at the start of the week.

The index posted a cumulative loss of 122 bps in the previous week.

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