Hertz’s new issue causes uptick in secondary market; Atwood remains active, though unchanged; oil goes low

By Colin Hanner and Paul A. Harris

Chicago, May 31 – The high-yield market welcomed a new issuance from Hertz Corp. on Wednesday, which caused up upsurge in activity in the secondary market for the car sales and rental company’s existing bonds.

An expected offering of five-year second-lien notes for Hertz was upsized to $1.25 billion on Wednesday afternoon, and existing issuances were up more than 1 point across the board, market sources said.

Offshore drilling contractor Atwood Oceanics, Inc. remained active a day following a takeover from Ensco plc, which acquired the Houston-based offshore drilling contractor for $839 million in an all-stock transaction, the companies said in a news release on Tuesday.

Atwood’s bonds, however, were nearly unchanged, while Ensco’s bonds were down a round number.

The downturn in oil continued into Wednesday, though steeper losses plagued crude oil futures. Noble Holdings International Ltd. was lower, as was California Resources Corp.

In the recently-priced realm, pet retailer PetSmart Inc.’s $2 billion of eight-year notes in two tranches moved up and down marginally, and Consolidated Energy Ltd. bounced slightly higher.

Franklin, Tenn.-based hospital group, Community Health Systems, Inc., which divested five hospitals after the close on Tuesday, was down fractionally in one of its issues, a market source said. Other hospital groups saw some activity, though movement did not stretch far in either direction.

Hertz upsizes

In the Wednesday primary market Hertz Corp. priced an upsized $1.25 billion issue of five-year second-lien secured notes at par to yield 7 5/8%, according to a market source.

The issue size was increased from $1 billion.

The yield printed in the middle of the 7½% to 7¾% yield talk.

The deal played to a substantial amount of reverse inquiry, with a lot of investors who were being taken out of existing bonds rolling into the new second-lien paper, an investor said.

Barclays was the sole bookrunner.

The Estero, Fla.-based car rental company plans to use the proceeds to redeem all of its 4¼% senior notes due 2018 and 6¾% senior notes due 2019 as well as other debt, which may include repayments of borrowings and/or commitment reductions with senior credit facilities, and repurchases and/or redemptions of certain of Hertz’s other senior notes.

Tuesday inflows

The daily cash flows of the dedicated high-yield bond funds were positive on Tuesday, the most recent session for which data was available at press time, according to an investor.

High yield ETFs saw $685 million of inflows on Tuesday.

Actively managed funds saw $165 million of inflows on the day.

Hertz sees demand ahead of pricing

The upsized $1.25 billion 7 5/8% five-year deal for Hertz lifted existing paper in the secondary market on the session, with the 5 7/8% notes due 2020 trading “more than 50 times,” a market source said.

The notes were up 1 point to 95.

Its 7 3/8% notes due 2021 were up 1½ points to 94½.

And the 6¼% notes due 2019 were up 1/8 point to 100 3/8, a market source said.

Proceeds of the offering will be used to either refinance existing debt or redeem current debt, as the rental car company struggles to navigate a space that continues to struggle with operating and pricing issues, not to mention the shifting landscape of the automobile industry, namely ride-sharing companies.

Atwood stays active

Following a double-digit climb on Tuesday after a takeover from Ensco plc, Atwood Oceanics remained active, though was nearly unchanged on the day, market source said.

Its 6½% notes due 2020 were unchanged at par-and-a-half, a market source said.

And Ensco’s 4½% notes due 2024, which were virtually unchanged after the takeover was announced, were down 1 point to 82½, a market source said.

Oil goes low

Falling further below the $50 per barrel benchmark, West Texas Intermediate crude oil was down more than 2% during Tuesday’s trading, hovering just below $48.50, a remarkably larger loss compared to the start of the week.

Exploration and production companies followed the broader trend, with California Resources Corp.’s 8% notes due 2022 ticking 1½-points lower to 88½, a trader said.

Offshore driller Noble Holdings’ 7¾% notes due 2020 were down 1 point to 88½.

And Canadian oil sands producer MEG Energy Corp.’s 7% notes due 2024 were down 1¼ points to 87.

Recent issues mixed

Recent issues with any type of volume were not moving too far from where they finished on Tuesday.

Consolidated Energy 6 7/8% notes due 2025 were seen at a 100 7/8 bid, 101 3/8 offer, as compared to the 100 5/8 bid, 101 1/8 offered seen on Tuesday.

The Miami-based alternative waste management services and energy production company priced $500 million of the bonds at 99.5 on Friday.

Pet retailer PetSmart’s $2 billion of notes from Friday moved in both directions.

The 5 7/8% notes due 2025 were down 1/8 point to par-and-a-half, a market source said, while the 8 7/8% notes due 2025 were up 1/8 point to 99 1/8.

Community Health sheds hospitals

After close on Tuesday, Community Health Systems signed an agreement to sell five Pennsylvania hospitals, which are expected to close in this year’s third quarter, the company said in a news release.

The five-hospital divestment is part of a larger plan to shed 30 hospitals, as discussed in the company’s first quarter earnings call.

That did not do much to excite bondholders in the secondary market, particularly the 7 1/8% notes due 2020, which were down 3/8 point to 98 5/8.

And Tenet Healthcare Corp.’s 6¾% notes due 2023 were down ¼ point to 99½.

Market indicators mixed

Market indexes were mixed on Wednesday, with the KDP High Yield Daily index gaining 2 basis points to 72.63 following two straight unchanged sessions on Tuesday and Thursday.

For the second consecutive day, its yield came in and was down 3 bps to 4.89%.

The Markit CDX Series 28 index eased by more than 1/16 point Tuesday to 107.38 bid, 107.46 offered, nearly mirroring Tuesday’s movement.

It had ended marginally lower on Monday, when the index published despite the holiday and had edged up by 1/32 point on Friday.

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