Energy names firm as oil prices surge; Neiman Marcus jumps on smaller loss, sales decline

By Paul Deckelman

New York, Oct. 10 – It was back to work Tuesday in the distressed-debt market, following the shut-down of fixed-income activity in the United States on Monday in observance of Columbus Day.

Traders saw good gains in many energy names such as California Resources Corp., MEG Energy Corp. and Denbury Resources Inc., helped by a sharp upturn in world crude oil prices, which had recently been on the slide.

Oil prices improved as Saudi Arabia indicated that it will cut its November crude oil allocations to customers by 560,000 barrels a day.

Away from the energy patch, Neiman Marcus Group’s notes firmed smartly, after the luxury retailer issued fourth-quarter results, including a smaller sales decline than had been seen in recent quarters.

Company executives were also upbeat about the prospects for its online retailing operation.

Separately, it said that it would conserve cash by using debt to make an upcoming interest payment on its PIK (payment in kind) notes.

While Neiman-Marcus was improved, bonds of other retailers such as Rite Aid Corp., J.C. Penney Co., Inc. and Fresh Market, Inc. were lower.

Energy credits improve

A trader said that energy names were doing well after having traded down at the end of last week as names like California Resources Corp. were “bouncing back smartly,” in line with a surge in world crude oil prices.

He saw Los Angeles-based E&P operator CalRes’ benchmark 8% notes due 2022 up by some 1¼ points on the day, ending at 64 bid, “the biggest bounce in the space.”

More than $10 million of those notes changed hands.

Elsewhere among the oil names, Plano, Texas-based Denbury Resources’ 5½% notes due 2022 were ending at 59¼ bid, up ¾ point, while Calgary, Alta-based oil sands producer MEG Energy’s 7% notes due 2024 gained 1 point to close at 87 bid.

Those credits were all helped by the fact that “oil was up big today,” a trader said, with November-delivery West Texas Intermediate crude jumping $1.34 per barrel, or 2.7% on the day, in trading on the New York Mercantile Exchange, finishing at $50.92

It was the second straight day of gains, with the benchmark U.S. crude grade having gained 29 cents on Monday, when trading went on despite Columbus Day. It was bouncing back from Friday’s $1.50 per barrel plunge.

Key international grade North Sea Brent for December delivery followed a similar trajectory in London futures trading, nosediving by $1.38 per barrel on Friday, bouncing 17 cents on Monday and rebounding by another 82 cents per barrel on Tuesday.

The oil prices shot up on reports that Saudi Arabia will cut its November crude oil allocations to customers by 560,000 barrels a day.

Also helping hold down supply – and thus prop up prices – was the fact that about 85% of the energy production facilities along the U.S. Gulf Coast remained shuttered on Monday after having been closed down ahead of Hurricane Nate, which blew through the Gulf over the weekend.

Apart from oil credits, a trader said that Murray Energy Corp. paper “has been all over the place, seeing the St. Clairsville, Ohio-based coal company’s 11¼% notes due 2021 up ½ point on the day at 62 bid.

Neiman Marcus moves up

Traders said that Dallas-based luxury retailer Neiman Marcus Group’s recently beleaguered bonds were big gainers on the day, with its 8% notes due 2021 jumping to 57 bid, a gain of 4 points.

“They were active,” he said, with over $19 million having changed hands.

The company’s other bonds were also seen better, with its 8¾% notes due 2021 firming to 52 5/16 bid.

The bonds firmed after the company reported fiscal fourth-quarter numbers which relatively speaking were not as bad as recent results had been.

It said sales were off by 0.5% for the quarter, a much smaller decline than it has suffered in recent quarters.

Its loss for the quarter was $366.3 million on sales of $1.12 billion, compared with a loss of $407 million on sales of $1.13 billion a year ago.

During the company’s conference call, chief executive Karen Katz declared that management saw "positive momentum for our business in the first quarter,” and was especially enthusiastic about its prospects for online sales, noting that “our online business will continue to outperform our store business, and at 30% of total sales, it will continue to grow in importance.”

Separately, the company, which is trying to conserve cash as it tries to improve its financial performance, said in a regulatory filing that it has decided to make payment-in-kind interest payments for its $600 million of 8¾%/9½% senior PIK toggle notes due 2021 for the interest period of Oct. 15 through April 14, 2018.

It elected to make PIK coupon payments instead of cash payments to enhance its liquidity, according to an 8-K filing with the Securities and Exchange Commission.

The company delivered notice to U.S. Bank NA, trustee under the indenture governing the notes, that it will pay PIK interest at the rate of 9½% for the period beginning Oct. 15.

Following the payment of the PIK interest on the notes for the interest period ending Oct. 14, there will be $628.5 million aggregate principal amount of outstanding notes, the filing said.

The company has around $700 million of available liquidity, which Gimme Credit senior analyst Kim Noland calls “adequate.”

However, Noland said in Tuesday research note that “balance sheet repair without a debt restructuring is still problematic given fiscal year end leverage of over 10x.”

Noland further cautioned that “a distressed exchange offer for the bonds is unlikely near term but in the longer term, the company's capital structure is unsustainable even with improved results in 2018.”

Other retailers off

While Neiman Marcus bonds were bouncing, other retailers were seen off on the day.

These included J.C. Penney, whose 6 3/8% bonds due 2036 were down more than a deuce on the day to 68¾ bid, druggist Rite Aid, whose 6 1/8% notes due 2023 fell by 1¼ points to 96¼, and supermarket operator Fresh Market, whose 9¾% notes due 2023 retreated by ½ point to 63 bid.

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