PetSmart notes trade off on pulled offering; energy sector continues to decline

By Abigail W. Adams

Portland, Me., Oct. 30 – It was another ugly day for capital markets with losses continuing to mount for CCC-rated credits and the energy sector.

Credit spreads widened substantially over the past week with CCC-credits the biggest underperformers.

The credit tier widened over 115 basis points in the week through Wednesday’s close, according to a BofA Global Research report.

“It’s been rough,” a source said.

While some market players were trying to reel in risk, hedge funds were leaning into certain names, particularly in the energy sector with WTI crude oil futures down 10% on the week, the source said.

Occidental Petroleum Corp.’s notes continued their decline on Friday as concern over slowing demand due to a resurgence of Covid-19 weighed down energy names.

Airlines were also hard hit with American Airlines Group, Inc.’s senior notes continuing to sell off in active trading.

However, PetSmart Inc.’s senior notes were in focus and were among the largest losers of Friday’s session after the pet specialty products retailer pulled its megadeal from the market due to investor pushback and market volatility.

Occidental moves lower

Occidental’s senior notes continued to move lower as losses continued to mount for the energy sector.

The fallen angel’s 6 5/8% senior notes due 2030 dropped almost 1 point to 88.

Occidental’s 8 7/8% senior notes due 2030 were down ¾ point to 98¼, a source said.

WTI crude oil futures continued to sink on Friday, settling at $35.72, a decrease of $0.45, or 1.24%.

Futures were down almost 10% on the week, a source said, dragging the larger energy sector with it.

American Airlines sinks

American Airlines’ senior notes saw heavy volume on Friday with the notes continuing to trade off on dashed hopes for a pre-election stimulus package.

American Airlines’ 3 3/8% senior notes due 2027 dropped 3¼ points to close Friday at 74¾, according to a market source.

The bonds were active with more than $12.5 million in reported volume.

American Airlines’ capital structure was posting gains the previous week following a better-than-expected earnings report and lingering hope Congress would be able to hammer out a stimulus package.

PetSmart drops

While the overall market was under pressure on Friday, PetSmart’s senior notes saw the steepest declines with the notes down 1 to 3 points after the company pulled its megadeal from the market.

PetSmart’s 7 1/8% senior notes due 2023 were down 2¼ points to close the day at 98½, a source said.

More than $26 million of the bonds were on the tape.

The notes traded up to 101 5/8 on Monday after PetSmart announced its new offering.

PetSmart’s 8 7/8% senior notes due 2025 dropped 3 points to par ½ with more than $32 million of the bonds on the tape.

The notes closed Monday at 104 3/8.

The pet specialty products retailer announced on Friday that it was withdrawing its $2.65 billion two-tranche offering.

Proceeds from the deal, together with proceeds from a new term loan and a $1.3 billion contribution to PetSmart’s equity, were to be used to redeem, repurchase and repay the full amount of its existing term loans and its three outstanding tranches of senior notes.

The deal was pulled due to market volatility and investor pushback, which drove the pricing of the offering wider during its time in the market. The loan was also withdrawn from the market.

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