Hertz notes jump on positive economic outlook; PG&E trades lower in utilities space

By James McCandless

San Antonio, June 5 – On the last day of the week in the distressed debt market, the focus was placed on travel-related names.

Hertz Global Holdings, Inc.’s notes jumped up, largely carried by positive market sentiment about an economic recovery.

Meanwhile, PG&E Corp.’s issues shifted lower amid news that the company is preparing a debt financing package for its bankruptcy exit.

In the manufacturing space, Bombardier Inc.’s paper improved despite news of more layoffs in its aviation division.

Retailer L Brands, Inc.’s notes saw positivity as a new issue of five-year notes hit the market on Friday.

Sector peer Rite Aid Corp.’s issues were also seen gaining.

Elsewhere, air travel name American Airlines Group Inc.’s paper extended a positive run as it expects travel to increase.

As oil futures saw a rise to cap the week, Occidental Petroleum Corp.’s, Antero Resources Corp.’s and SM Energy Co.’s notes followed.

Hertz jumps

Hertz’s notes spent the session jumping upward, traders said.

The 6¼% senior notes due 2022 improved by 12¼ points to close at 34¾ bid. The 5½% senior notes due 2024 added 12¾ points to close at 34¾ bid.

Both tranches combined saw a about $40 million change hands.

The Estero, Fla.-based car rental company’s structure was lifted by a combination of the market’s positive outlook on an economic recovery and new economic data.

As travel companies look to expand operations as government restrictions on the coronavirus are lifted, the market has become bearish on the sector.

“This is a correction, which is natural, but it looks like people are over-correcting,” a trader said. “Hertz went bankrupt like two weeks ago.”

Another indicator fueling the rise is the recovery of used car auction prices, which plummeted in April.

Recently, large investor Carl Icahn sold all of his stake in the name, ending up with a $1.6 billion loss.

PG&E lower

Meanwhile, PG&E’s issues shifted lower as the day closed, market sources said.

The 6.05% notes due 2034 shaved off ¼ point to close at 118 bid.

During the Friday session, news broke that the San Francisco-based electric utility is preparing a debt-financing package expected to pricing next week as it heads toward exiting bankruptcy.

Tranches of the financing are expected to include a new term loan as well as investment-grade and high-yield corporate bonds, Prospect News reported.

Other reports indicated that $11 billion in new debt is being talked up, including $4 billion of high-yield bonds and a $750 million term loan.

Last week, after months of legal challenges and negotiations, the company won approval for its restructuring plan from California regulators.

Bombardier up

In the manufacturing space, Bombardier’s paper improved, traders said.

The 7 7/8% senior notes due 2027 added 3 points to close at 76 bid. The 7½% senior notes due 2025 grabbed 2½ points to close at 77 bid.

Early Friday, news broke that the Montreal-based air and rail manufacturer would be cutting 2,500 jobs in its aviation segment due to the impact of the pandemic.

In a note to employees, an executive said that the company expects a 30% year-over-year drop in unit deliveries.

On Thursday, the company temporarily laid off 196 employees in its Toronto regional rail services division for similar reasons.

Also this week, Bombardier closed a $550 million sale of its regional jet unit to Mitsubishi Heavy Industries Ltd.

L Brands, Rite Aid up

Retailer L Brands’ notes saw positivity by the end of the afternoon, market sources said.

The 5¼% senior notes due 2028 picked up 6¾ points to close at 91¾ bid. The 6¾% senior notes due 2036 tacked on 1¾ points to close at 86¾ bid.

After the close on Thursday, the company priced $1.25 billion of five-year notes in two parts.

The deal included $750 million of senior secured notes and $500 million of senior unsecured bullet notes.

Both new tranches closed above par at Friday’s end, a market source said.

In the last few months, the company has seen turmoil after having to temporarily close its retail locations, terminating the sale of its Victoria’s Secret segment and posting a $1 billion first-quarter loss.

Camp Hill, Pa.-based drug store chain Rite Aid’s issues were also seen gaining.

The 6 1/8% senior notes due 2023 rose 1 point to close at 96 bid.

AA gains

Elsewhere, American Airlines’ paper continued an upward run, traders said.

The 5% senior paper due 2022 shot up 7½ points to close at 77½ bid. The 3¾% senior notes due 2025 gained 4¼ points to close at 68 bid.

On Thursday, the 3¼% paper jumped up 8½ points.

The upward trend that has gripped the Fort Worth-based airline’s structure was sparked after announcing an increased number of daily flights as coronavirus restrictions die down.

In all, 4,000 flights are expected to operate on the company’s busiest days in July, up from its 2,300 estimate in June.

The focus in the short-term will be on domestic flights.

Oil better

As oil futures saw a rise to cap the week, distressed energy tranches emulated those movements, market sources said.

West Texas Intermediate crude oil futures for July delivery picked up $2.14 to finish the week at $39.55 per barrel.

North Sea Brent crude oil futures for August delivery settled at $42.30 per barrel after a $2.31 boost.

Houston-based independent oil and gas producer Occidental Petroleum’s notes followed the trend.

The 2.9% senior notes due 2024 moved up 1¾ points to close at 84¾ bid. The 2.7% senior notes due 2022 garnered 1¼ points to close at 95½ bid.

Denver-based producer Antero Resources’ issues were also swept up.

The 5 5/8% senior notes due 2023 tacked on 3¼ points to close at 63¾ bid. The 5% senior notes due 2025 rose 2½ points to close at 60½ bid.

Houston-based peer SM Energy’s paper was also pushed higher.

The 5 5/8% senior paper due 2025 tacked on 1 point to close at 55½ bid. The 6 5/8% senior notes due 2027 added 3¾ points to close at 55½ bid.

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