Hertz notes trade lower as lease payment skipped; SM Energy rises despite earnings loss

By James McCandless

San Antonio, April 29 – The distressed debt market was a tug of war between the economic effects of the coronavirus and the optimism of a post-pandemic economy on Wednesday.

Hertz Global Holdings, Inc.’s notes dropped after the company announced that it elected to skip recent lease payments on its vehicles.

In the oil and gas space, SM Energy Co.’s issues rose despite posting a loss as the energy sector was carried higher.

As crude oil futures were pushed upward, Whiting Petroleum Corp.’s and Transocean Ltd.’s paper followed the trend while Occidental Petroleum Corp.’s notes varied.

Meanwhile, aerospace manufacturer Bombardier Inc.’s issues fell after announcing that it would resume operations in Canada.

In retail, L Brands, Inc.’s and J.C. Penney Co., Inc.’s paper was improving on growing optimism about the economy.

Elsewhere, property name Realogy Holdings Corp.’s notes were picking up steam.

Hertz drops

Hertz’s notes saw a drop during the Wednesday session, traders said.

The 7 5/8% notes due 2022 declined by 6 points to close at 37 bid. The 6% senior notes due 2028 fell 4½ points to close at 18½ bid.

About $28 million of the tranches combined changed hands.

On Wednesday morning, news broke that the Estero, Fla.-based car rental company disclosed that it did not make payments related to its vehicle leases.

The company has begun talks with lenders to reduce its obligations and avoid a bankruptcy filing, having until the end of a grace period on May 4 to reach an agreement.

“The nonpayment seems close to a default,” a trader said. “If there isn’t any federal money coming it looks like a bankruptcy is in the cards.”

The company has been in talks with banks and the U.S. Treasury Department for a financial rescue package, though no progress has been made.

Last week, reports indicated that Hertz had hired restructuring advisers in order to avoid bankruptcy.

SM Energy rises

In the oil and gas space, SM Energy’s issues were on the rise, market sources said.

The 6 1/8% senior notes due 2022 improved by 7 points to close at 41½ bid. The 5% senior notes due 2024 jumped up 7½ points to close at 32½ bid.

As the market opened on Wednesday, the Denver-based independent oil and gas producer reported first-quarter earnings.

The company showed an earnings loss of 5 cents per share, narrower than the 21 cents per share loss that analysts had expected.

Revenues were pegged at $355.73 million, well under analyst predictions.

Despite the negative news, the company’s structure was swept up in a rally in the energy sector.

Oil futures up

As crude oil futures were pushed upward, distressed energy tranches followed, traders said.

The sector rallied after the U.S. Energy Information Administration reported that oil storage levels rose by 9 million barrels this week, less than the anticipated 9.8 million.

West Texas Intermediate crude oil futures for June delivery rose $2.72 to end the session at $15.06 per barrel.

North Sea Brent crude oil futures for June delivery finished at $22.54 per barrel after a $2.08 bump.

Denver-based producer Whiting Petroleum’s paper followed the sector trend.

The 6¼% senior paper due 2023 spiked 1½ points to close at 10½ bid. The 6 5/8% senior notes due 2026 also garnered 1½ points to close at 10½ bid.

Steinhausen, Switzerland-based contract driller Transocean’s notes also tracked higher.

The 8 3/8% senior notes due 2021 gained 4 points to close at 36¾ bid.

Houston-based peer Occidental Petroleum’s issues varied in direction.

The 2.9% senior notes due 2024 picked up 1 point to close at 75 bid. The 2.7% senior notes due 2022 shaved off ½ point to close at 85 bid.

Bombardier falls

Meanwhile, aerospace name Bombardier’s paper was seen falling, market sources said.

The 7 7/8% senior notes due 2027 chalked off 1½ points to close at 65¾ bid. The 6% senior notes due 2022 dipped ¼ point to close at 75 bid.

After the close on Tuesday, the Montreal-based aerospace manufacturing name announced that it was in the process of recalling about 11,000 Canadian workers in order to resume operations on May 11.

In late March, the company suspended operations at its Canadian and European facilities in order to comply with government mandates meant to slow the spread of the coronavirus.

Bombardier has also begun resuming production at its U.K. facilities.

Retailers improve

In retail, L Brands’ notes marked the day with an improvement, traders said.

The 6¾% senior notes due 2036 added 1½ points to close at 73 bid. The 5¼% senior notes due 2028 gained 4 points to close at 71¾ bid.

The Columbus, Ohio-based retailer’s structure has been lifted over the last few trading days, largely based on market optimism of the post-coronavirus economy.

Despite recent negative news, namely a legal fight over an asset sale and a ratings downgrade, the market grabbed hold of the prospect of retail locations opening as states look to relax stay-at-home orders.

Plano, Tex.-based department store chain J.C. Penney’s issues also saw positivity.

The 5 7/8% senior secured notes due 2023 rose 1 point to close at 47½ bid.

Realogy better

Elsewhere, property name Realogy’s paper was picking up steam, market sources said.

The 5¼% senior notes due 2021 tacked on 3 points to close at 84 bid. The 9 3/8% senior notes due 2027 shot up 4½ points to close at 70½ bid.

Earlier this week, the Madison, N.J.-based real estate company announced a lawsuit against Madison Dearborn Partners, LLC and Sirva Worldwide, Inc. over disputes on a purchasing agreement.

Both Realogy and Sirva are disputing whether certain closing conditions have been met on a $400 million sale of Realogy’s Cartus Relocation Services unit.

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