Spirit Airlines moves higher; Level 3 paper volatile; DISH up on day, soft in January

By Cristal Cody

Tupelo, Miss., Jan. 29 – Spirit Airlines Inc.’s 8% senior secured notes due 2025 neared its pre-court ruling levels on Monday in heavy trading totaling over $30 million following JetBlue Airways Corp.’s warning on Friday the merger could be called off on or after Sunday.

The issue was trading ¾ point to over 2 points higher as both companies stayed silent about the deal over the session.

Level 3 Financing, Inc.’s bonds took back some of the extreme loses from Friday, but overall supply was light with the bulk of distressed trading going to Spirit Airlines’ paper, a source said.

Level 3’s bonds were up about ½ point to 20 points after sliding around 3 points to over 19 points on Friday in the session after parent Lumen Technologies, Inc. reported an amended transaction support agreement reached with a majority group of creditors.

However, the transaction could go another way, Fitch Ratings said in a report released Monday to Prospect News.

“The issuer is undergoing a large-scale restructuring with the outcome still pending,” Fitch noted.

Level 3 Financing’s 4¼% notes due 2028 (B3/CCC+) rallied 14¼ points on $4 million of trading over the day.

Lumen’s 5 1/8% notes due 2026 (Caa3/CCC-) traded with a handle in the low 60s on $2 million of activity.

DISH Network Corp.’s bonds gained under ½ point to 1 point as the paper tries to narrow the gap in losses after new parent EchoStar Corp. announced plans to transfer collateral assets out of the company and conduct exchanges for convertible notes and junk bonds.

DISH DBS Corp.’s 7¾% notes due 2026 went out 1 point higher on the day on supply that totaled over $8 million.

DISH DBS’ bonds finished the prior week on average about 4 points better on the week but were down 8 points over the past month and year to date, BofA Securities said in a report on Friday.

Traders on Monday were awash in new high-grade and junk paper that priced over the session or in the prior week, sources said.

Stock indices were all higher on the day with Treasury yields lower. The S&P 500 index finished up 0.76%.

The iShares iBoxx High Yield Corporate Bond ETF rose 17 cents, or 0.22%, to $77.80.

The benchmark 10-year note yield dropped 6 basis points to 4.09%.

Market focus is centered this week on the heavy pace of earnings reports and Wednesday’s Federal Reserve rate decision, though no changes are expected at the January meeting, sources reported.

Some earnings reports to be on the watch for regarding negative news include at least three companies that are reporting later than usual, namely F5 Inc., Teradyne Inc. and Rockwell Automation Inc., Christine Short of Wall Street Horizon said in a report on Monday.

Of 124 companies reporting so far, S&P 500 earnings for the fourth quarter are running at $55 per share, below estimates of $55.15 but up 1.6% from the third quarter, according to a Confluence Investment Management note on Monday.

“Of the companies that have reported thus far, 79% have exceeded expectations, while 16.9% have fallen short of expectations,” the analysts said.

Bond defaults mostly quiet

S&P Global Ratings said in a report on Monday there were two U.S. defaults last week, which brought the year-to-date total to 11.

Loan defaults so far have included five issuers across the chemicals, financials, health care and technology spaces.

“Loan defaults are already at $2.1 [billion] for the month at average recovery of 56 pts, with nothing so far in bonds,” according to a BofA Securities report. “Defaults totaled $34 [billion] in bonds and $42 [billion] in loans over 2023, at average recoveries of 40 pts and 43 pts, respectively.”

Fitch Ratings said its leveraged loan total-12-months default rate increased to 3.35% as of Jan. 26, up from 3% at Dec. 31.

The high-yield space has seen one default in January from Audacy Inc., which filed for Chapter 11 on Jan. 7 after missing interest payments across both institutional loan and high-yield debt in November 2023, according to Fitch’s new U.S. Distressed and Default Monitor released Monday to Prospect News.

Fitch’s high-yield TTM default rate was 2.9% as of Jan. 19, down from 2.97% at the end of 2023.

More than $650 billion of high-yield bond debt is included on Fitch’s Top Market Concern Bonds list, including 14 issuers which each hold more than $1 billion in junk debt that’s at risk of default over the next 12 to 24 months totaling $54.5 billion.

Fitch Ratings reported the new monthly monitor it launched in the prior week focuses on the leveraged loan and high-yield distressed markets.

Spirit Airlines higher

Spirit Airlines’ 8% senior secured notes due 2025 were quoted at the 65¼ bid to 66 bid area on Monday in heavy trading totaling over $30 million, a source said.

The notes traded as high as 2¼ points better at 66 bid on over $15 million of volume.

The issue was seen later at 65¼ bid, up ¾ point on more than $17 million of trading.

On Friday, the notes fell ¼ point to 64 bid on around $27 million of paper traded and ended the week about 4 points stronger.

The bonds were nearing their pre-court ruling levels when they traded at 74½ bid, 75½ offered but have rebounded from a low of 47½ bid, 48½ offered after a court ruling blocked its $3.8 billion merger with JetBlue Airways on Jan. 16.

The U.S. District Court of the District of Massachusetts granted the U.S. Department of Justice’s request for a permanent injunction against the proposed merger of Spirit and JetBlue.

On Friday, the company reported that JetBlue notified it that closing conditions required under the agreement may not be satisfied by the outside dates, and the agreement may be terminated on or after Sunday.

Spirit Airlines plans to release fourth-quarter results and its outlook on Feb. 8.

The Miramar, Fla.-based low-cost airline’s stock (NYSE: SAVE) fell 3.52% to $6.03 on Monday.

Level 3 bonds jump

Level 3’s bonds were up about ½ point to 20 points after sliding around 3 points to over 19 points on Friday, a source said.

Level 3’s 3 5/8% senior notes due 2029 (B3/CCC+/CCC+) jumped 20 points to 53 bid on $5 million of volume on Monday.

The 4¼% senior notes due 2028 (B3/CCC+/CCC+) rallied 14¼ points to 57¼ bid on $4 million of trading.

Lumen’s 5 1/8% senior notes due 2026 (Caa3/CCC-/CCC-) traded at just under 63 bid on $2 million of activity during the session.

Lumen reported Thursday it reached an amended TSA with subsidiaries Level 3 Financing, Inc. and Qwest Corp. that has support from a group of creditors that now represent over $12.5 billion of outstanding debt and commitments from Lumen and its subsidiaries and over 70% of the total Lumen and Level 3 debt maturing through 2027.

However, Lumen could take a different approach, Fitch said in its report released Monday to Prospect News.

In the proposed transaction support agreement, non-consenting lenders “would be primed in a maneuver that would likely be considered a DDE [distressed debt exchange],” Fitch said. “An alternative proposal led by revolver lenders is also being negotiated, bifurcated into a Lazard-backed group and a Bank of America-led group. Bank of America is the agent on the revolver and the TSA requires 100% consent from the revolver bank lenders.”

Lumen Technologies is Fitch’s largest issuer on its market concern loans list with $6.3 billion of leveraged loan debt and the second largest issuer on its market concern bonds list with $6.1 billion of bond debt.

The amended support agreement announced last week calls for transactions in the first quarter that include $1.33 billion in new-money long-term senior secured first-lien debt by Level 3, an approximately $1 billion new revolving credit facility at Lumen, the extension of maturities to mostly 2029 and beyond and the repayment of certain of Lumen’s and Qwest’s debt.

The outside date of completion for the transaction support agreement is Feb. 29.

Lumen, a Monroe, La.-based global telecommunications company, intends to release fourth-quarter results on Feb. 6.

DISH improves

DISH DBS’ 7¾% notes due 2026 (Caa2/CC) rose 1 point by the end of the session to 60¼ bid on $8.5 million of volume, a source said.

The bonds picked up ½ point on Friday to a quote of 59¼ bid on $15 million of trading.

DISH DBS Issuer LLC plans to exchange its 5 7/8% senior notes due 2024, 7¾% senior notes due 2026, 7 3/8% senior notes due 2028 and 5 1/8 senior notes due 2029 for up to $3 billion of new secured notes.

Fitch said it added DISH Network to its top market concern bond list due to the company’s Jan. 12 and Jan. 16 launches of consent solicitations for below-par exchanges of a chunk of unsecured senior and unsecured convertible notes and $4.5 billion of senior notes due between 2026 and 2029 and secured by cash flows from three million DISH TV subscribers that were transferred to DISH DBS Issuer.

DISH parent EchoStar is facing fraud accusations from at least two creditor groups due to the exchange offers and collateral transfers.

On Jan. 10, DISH Network announced the transfer of part of its unencumbered wireless spectrum assets into new subsidiary EchoStar Wireless Holding LLC and the transfer of 3 million subscribers out of the restricted group into unrestricted subsidiaries, Fitch noted.

EchoStar also assigned a portion of an intercompany loan receivable, tranche A, valued at approximately $4.7 billion, to EchoStar Intercompany Receivable LLC payable by DISH Network.

Fitch said it plans to register an issuer default upon completion of the exchanges that it considers distressed.

The Englewood, Colo.-based satellite cable company’s debt exchange offers expire Feb. 12.

Distressed returns drop

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns ended Friday at 0.08%, compared to 0.93% on Thursday, 0.01% on Wednesday and Tuesday and 0.45% at the start of the prior week.

Month-, quarter- and year-to-date total return losses narrowed to minus 1.41% on Friday.

Returns for the periods were negative 1.48% on Thursday, minus 2.39% on Wednesday, minus 2.41% on Tuesday and minus 2.42% in the week’s first session.

© 2015 Prospect News.
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