Energy gains in distressed debt market; L Brands up on store closures; U.S. Steel drops

By Abigail W. Adams

Portland, Me., May 21 – The distressed debt space was active and marginally improved on Thursday with distressed energy credits leading the way.

However, the activity was largely one-sided with plenty of bids in the market but few offers as the high-yield new issue calendar continued to detract from secondary activity, a source said.

Energy names remained in focus with several credits continuing to post gains as crude oil futures extended their rally.

Paper from Denbury Resources Inc., Whiting Petroleum Corp. and Transocean Ltd. was on the rise.

In the retail sector, L Brands, Inc.’s senior notes jumped as the company announced plans to shutter hundreds of its Victoria’s Secret stores.

United States Steel Corp.’s unsecured notes were trading off as the company prepped an offering of secured notes.

Energy improves

Distressed energy credits continued to gain on Thursday as crude oil futures continued their upward momentum.

Denbury Resources’ 9¼% senior notes due 2022 rose another 2 points to 33 on Thursday, according to a market source. The notes were up about 4 points on the week.

Transocean’s 7½% senior notes due 2026 gained 1¼ points to 52¼. The notes were up 6 points on the week.

Whiting Petroleum’s 6¼% senior notes due 2023 rose to double digits on Thursday. The notes were up 1 1/25 point to 10¾, a source said.

The 6 5/8% senior notes due 2026 traded up almost 2 points to 11¼.

While distressed energy credits have posted gains throughout the week, “it’s more of a dead cat bounce,” a source said.

Distressed energy credits were posting gains as crude oil futures continued their rally.

WTI crude oil futures continued to set recent highs, settling at $33.92, an increase of 43 cents or 1.3%, on Thursday.

Crude oil futures have rallied over the past week on optimism surrounding an increase in demand as the economy slowly reopens combined with production cuts.

L Brands gains

L Brands’ senior notes saw large gains on Thursday despite a dismal earnings report.

The fashion retailer’s 6¾% senior notes due 2036 gained 5 points to 76, according to a market source.

The 5¼% senior notes due 2028 jumped 5 points to 79½.

The notes were posting gains despite a dismal first-quarter earnings report.

L Brands reported revenue of $1.65 billion versus analyst expectations for earnings of $1.79 billion, a source said. Revenue was down more than 37% year over year.

The company’s EBITDA was negative $82 million versus analyst expectation for EBITDA of $76.2 million. EBITDA was down 127% year over year, a source said.

The parent company to the Victoria’s Secret and Bath & Bodywork’s brands have struggled since a planned asset sale of a portion of the company’s stake in Victoria’s Secret fell through.

However, L Brands’ senior notes were on the rise after the company announced that it was going to close up to 250 locations in North America.

The company announced it was going to take steps to separate Bath & Body Works from Victoria’s Secret, which has struggled in recent years.

U.S. Steel declines

U.S. Steel’s unsecured senior notes were selling off on Thursday as the company prepped a new offering.

U.S. Steel’s 6¼% senior notes due 2026 dropped 3 points to 58½, according to a market source.

The 6 7/8% senior notes due 2025 dropped 2½ points to 63.

The notes were trading off as the Pittsburgh-based steel producer priced an upsized $1 billion offering of five-year senior secured notes, which priced at 94.665 with a coupon of 12% to yield 13½%.

While the unsecured notes were still trading with a higher yield, the new offering pushed the notes further down the capital structure, a source said.

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