A $1 Billion Junk Bond Down 38% in Less Than a Year Shows Just How Much the Market Has Changed

(Bloomberg) — If you liked it at 7.5%, you’ll love it at 18%?Payday lender Curo Group Holdings Corp. sold $750 million of junk bonds about a year ago, offering investors a juicy yield of 7.5% in return for the risk of taking on exposure to a wide variety of consumer lending. It then sold another $250 million of the securities in November at slightly above face value. The bonds — now rated CCC+ by S&P Global Ratings — yield a whopping 17.9% and are trading at just 62 cents on the dollar. It’s quite a change from last year, when both the first deal and the reopening were increased in size thanks to rampant demand from investors for the debt.

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Of course, a rapid rise in interest rates has pushed prices down for a wide range of government and corporate debt, with sales of even investment-grade bonds that carry higher credit ratings drying up in recent weeks. But the sizable yields on offer from the Curo debt maturing in 2028 suggest that duration risk, or sensitivity to interest rates, is less of a factor here.

Instead, worries over a looming recession and stricter rules on payday lending are almost certainly weighing on investors’ minds. And Curo has been buying and selling operations over the last year, including striking agreements to offload a legacy US direct lending business for $345 million, and the same for the purchase of First Heritage Credit for $140 million.More broadly, investors in US corporate bonds have been seeking the safety of higher-quality debt during the recent market turmoil. Instead of running towards bonds like Curo’s, as they were just last year, now many seem to be running away.