Diamond Offshore drops after bankruptcy news; Hertz notes rise despite ratings cut

By James McCandless

San Antonio, April 27 – The distressed debt market focused on sectors significantly weakened by the pandemic, namely energy and retail, on Monday.

Diamond Offshore Drilling, Inc.’s notes dropped after the company became the latest energy name to file for bankruptcy.

More weakness in oil futures spurred declines in Occidental Petroleum Corp.’s and Chesapeake Energy Corp.’s issues as Whiting Petroleum Corp.’s paper varied.

Meanwhile, Hertz Global Holdings, Inc.’s notes rose on market optimism surrounding potentially loosened Covid-19 restrictions.

Property name Realogy Holdings Corp.’s issues trailed as the company sues to enforce a purchase agreement.

In retail, J.C. Penney Co., Inc.’s and L Brands, Inc.’s paper both lost ground as continued weakness hampers the sector.

Elsewhere, utilities name PG&E Corp.’s notes rebounded after a week under pressure.

Diamond Offshore down

Diamond Offshore’s notes dropped during the Monday session, traders said.

The 4 7/8% senior notes due 2043 lost 3½ points to close at 9 bid. The 7 7/8% senior notes due 2025 shed 3 points to close at 9¾ bid.

On Sunday, the Houston-based offshore contract driller announced that it would file for Chapter 11 bankruptcy to restructure and strengthen its balance sheet and achieve a more sustainable debt profile, Prospect News reported.

Talks have started with creditors to negotiate a comprehensive restructuring plan.

The company blamed the deterioration of market conditions in recent months, most notably the collapse in crude oil prices.

In its filing with the Securities and Exchange Commission, the company listed about $2.6 billion in debt.

“This fits the profile of who has filed recently,” a trader said. “There are quite a few more E&P names that are going to make the same move by the end of May.”

Concurrently, Diamond Offshore filed a lawsuit against Beach Energy Ltd. and Beach Energy (Operations) Ltd. to invalidate a terminated drilling contract, which it says was nixed after the company missed a contractual milestone to deliver a rig by days.

Oil weaker

More weakness in oil futures spurred similar declines in distressed energy, market sources said.

Continued market worries about the imbalance between energy demand and supply continued to plague futures.

West Texas Intermediate crude oil futures for June delivery dived $4.16 to finish the day at $12.78 per barrel.

North Sea Brent crude oil futures for June delivery ended at $19.99 per barrel after a $1.45 slip.

Houston-based independent oil and gas producer Occidental Petroleum’s issues declined.

The 2.9% senior notes due 2024 declined 3½ points to close at 71½ bid. The 2.7% senior notes due 2022 shaved off ¾ point to close at 84 bid.

Oklahoma City-based producer Chesapeake Energy’s paper followed the trend.

The 7% senior notes due 2024 gave up 1½ points to close at 5 bid. The 11½% paper due 2025 fell 1 point to close at 8 bid.

Denver-based peer Whiting Petroleum’s notes varied.

The 6¼% senior notes due 2023 added ¼ point to close at 10¼ bid. The 6 5/8% senior notes due 2026 held level at 10½ bid.

Hertz rises

Meanwhile, rental name Hertz’s issues rose throughout the day, traders said.

The 6¼% senior notes due 2022 added 3 points to close at 28½ bid. The 5½ senior notes due 2024 improved by 1½ points to close at 24 bid.

The Estero, Fla.-based car rental company’s structure was swept up in a wave of market optimism as the federal government and states start to talk about reopening businesses and reducing restrictions after lengthy stay-at-home orders meant to curb the spread of the coronavirus.

As the pandemic ground travel to a halt, the company announced 10,000 layoffs last week as it seeks a financial rescue package from the government.

“I think today was an overreaction,” a trader said. “Just because things open back up doesn’t mean travel is going back to where it was. It will be significantly reduced in the near-term.”

Also on Monday, DBRS downgraded the company’s ratings to CCC from B, citing the impact of the pandemic to its balance sheet.

Realogy trails

Property name Realogy’s paper trailed by the end of the afternoon, market sources said.

The 5¼% senior notes due 2021 chalked off 4 points to close at 83 bid. The 9 3/8% senior paper due 2037 dipped 3½ points to close at 62½ bid.

During the day, the Madison, N.J.-based real estate name announced that it had filed a lawsuit against Madison Dearborn Partners, LLC and Sirva Worldwide, Inc. to enforce commitments on a $400 million purchase agreement.

On Nov. 7, 2019, the company had reached an agreement to sell its Cartus Relocation Services unit to Serva.

The company claims that it had notified Sirva that it had met all closing conditions on the deal on April 24, to which Sirva replied that some had not been met and could not be completed by the April 30 deadline.

J.C. Penney, L Brands off

In the retail sector, J.C. Penney’s notes lost ground, traders said.

The 5 7/8% senior notes due 2023 lost 2¾ points to close at 47¼ bid. The 5.65% senior notes due 2020 slid 4¾ points to close at 8 bid.

At the tail end of last week, reports indicated that the Plano, Tex.-based department store chain is holding advanced talks to secure bankruptcy funding.

The company is working to obtain between $800 million to $1 billion for the process.

A recently skipped interest payment triggered a forbearance period as the company negotiates with creditors.

Columbus, Ohio-based sector peer L Brands’ issues were also pushed under.

The 6¾% senior notes due 2036 shed 1 point to close at 70 bid. The 5¼% senior notes due 2028 declined by 1½ points to close at 66 bid.

PG&E up

Elsewhere, PG&E’s paper rebounded after a week under pressure, market sources said.

The 6.05% bonds due 2034 picked up 6¼ points to close at 112 bid.

Last week, the San Francisco-based bankrupt electric utility saw a negative trend after announcing the retirement of chief executive officer William Johnson.

Johnson is set to retire from the position on June 30, the target date for the company’s bankruptcy exit.

© 2015 Prospect News.
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