Hercules Offshore bonds dive as contract lost; JCPenney, Sears improve after earnings releases

By Stephanie N. Rotondo

Phoenix, Feb. 26 – The distressed debt market was flying higher yet again Thursday, though a 4% decline in oil prices weighed on most of the equity market.

The tumble in oil prices – brought on by fresh concerns of oversupply – was also not helping Hercules Offshore Inc., which was dealing with troubles of its own as it was reported the company lost a drilling contract.

In the retail arena, both J.C. Penney Co. Inc. and Sears Holdings Corp. reported earnings on Thursday. While both stores posted losses, their debt was gaining traction as the companies expressed hope for the near future.

Hercules loses contract

Hercules Offshore, a Houston-based offshore oil drilling company, lost a drilling contract with Saudi Aramco, the world’s largest oil producer, according to a Wall Street Journal report.

The news, combined with a hefty decline in oil prices, sent the company’s bonds down as much as 9 points, a trader said.

“That’s not good,” the trader said of the news.

He said the 6¾% notes due 2022 were down the most, falling to 30¾. The 8¾% notes due 2021 meantime lost 8 points, closing at 32¼.

The 7½% notes due 2021 were meantime 6 points weaker at 32, while the 10¼% notes due 2019 softened 5½ points to 38.

Another source said the 6¾% notes opened straddling 32, but closed around 30½. That compared to previous levels in a 37¾ to 38 context.

The 8¾% notes finished at 32¼, down from 41¼, according to the source.

As for the 7½% notes, they were seen at 31¼ bid, 31½ offered, down from levels around 38 previously. The 10¼% notes ended around 38, down from 43½.

Saudi Aramco terminated its contract for the Hercules 261 rig, though its contracts on the 262 and 266 rigs are intact. Hercules said it is in negotiations with the company to continue the contract, as well as to possibly reduce rates for the other rigs.

As for oil prices, West Texas Intermediate crude oil dropped $2.08, or 4.08%, to $48.91 per barrel. Brent crude slid $1.15, or 1.87%, to $60.48.

On Wednesday, the Energy Information Administration said that U.S. crude oil inventories rose 8.4 million barrels during the week ending Feb. 20, bringing the total stockpile to 434.1 million barrels.

JCPenney sales rise

JCPenney saw an increase in its fourth-quarter sales, but ultimately posted a loss for the period.

Despite the loss, investors pushed the company’s debt higher.

One market source pegged the 5.65% notes due 2020 at 87½ bid, up 1½ points. Another source saw the issue at 87 bid, 87¼ offered, up from 86.

Net sales rose 3% to $3.89 billion for the period ended Jan. 31. Net loss was $59 million, or 19 cents per share.

That compared to a profit of $35 million, or 11 cents per share, the year before.

Same-store sales improved 4.4%.

The Fort Worth, Texas-based company attributed the higher sales to increased demand for household goods, clothing and jewelry over the holiday season.

Sears’ loss narrows

Sears also came out with earnings on Thursday and a narrower loss helped the bonds move up.

A trader said the 6 5/8% notes due 2018 increased over a point to 93½. Another source saw the notes at 93½ as well, also over a point higher.

For the quarter, the Hoffman Estates, Ill.-based retailer saw a net loss of $159 million, or $1.50 per share. That compared to a loss of $358 million, or $3.58 per share, the year before.

EBITDA turned positive at $125 million, compared to a loss of $92 million.

Revenue fell to $8.1 billion from $10.6 billion, dragged down in part by the closure of 2343 stores last year, a decreased stake in Sears Canada and the spinoff of Land’s End.

The holiday quarter also saw a decline of 4.4% in same-store sales.

Sears is continuing to move forward with plans to place 200 to 300 of its Sears and Kmart stores into a real estate investment trust, an effort that is slated to be completed by June. The spinoff is expected to be funded by new equity – sold via a rights offering – and debt. Overall, the company believes the move will generate $2 billion.

Additionally, the company said it plans to update some of its stores, many of which are in need of a makeover. Some of the plans include creating a store-within-a-store concepts, particularly in the electronics areas.

© 2015 Prospect News.
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