Hertz higher after rumors brew around potential Apple partnership; Rite Aid rises on FTC speculation; E&P up

By Colin Hanner

Chicago, June 26 – Emphasized by the expected lull of the next two weeks in markets, the distressed debt market was tame on Monday, market sources said, led by a handful of issues from Hertz Global Holdings Inc.’s following media reports of Apple Inc. leasing Hertz cars to test its autonomous car fleet.

Yet, overall, traders were “bored” with a week that is expected to be on the “slower side with people taking vacation ahead of the Fourth of July,” a market source said.

“It’s Monday in the summer,” another market source said. “It played pretty honest to that.”

Hertz bonds saw a several-point across-the-board gain in its bonds and an even steeper surge in its equity off a Bloomberg story that hinted a Hertz-Apple partnership could be in the cards, mirroring that of Google parent, Alphabet Inc., and rental car company, Avis Budget Group Inc.

Also on speculation of something better, Rite Aid Corp. was higher after a news report suggested that the Federal Trade Commission will likely approve of a purchase of the drugstore from Walgreens Boots Alliance, a market source said.

Energy names were generally higher as oil continued to gain on Monday following last week’s disastrous run.

California Resources Corp. led the sector with a near-point gain.

Several distressed notables, Frontier Communications Corp. and Valeant Pharmaceuticals International Inc. among them, traded, though volume was small.

Hertz gains with potential partnership

Hertz saw one of its best equity surges in recent history, as well as a bounce in its bonds on Monday following a Bloomberg story that Apple is leasing a fleet of Lexus SUV’s from Hertz’s management unit, Donlen Fleet Management Services Inc.

"People were reading into the same thing that could happen" with Hertz and Apple as did with Alphabet and Avis, a market source said. The uptick in the company's stock and bonds was likely due to investors speculating that a fully-fledged partnership between Apple and Hertz is likely to occur.

“A lot of the market is short this name,” the source continued. “Anything that is constructively positive is probably going to send a short scramble. That could explain the rally in stock and the jump in the bonds.”

Its 7 5/8% notes due 2022 were up almost 2 points to 99¾, a market source said, while its 5 7/8% notes due 2020 were up 2½ points to 96.

The 5% notes due 2024 were up 2 points to 81.

On the session, Hertz’s stock was up $1.30, or 13.58%, to $10.83.

Rite Aid up on expected FTC approval

Drug store Rite Aid, a see-saw of FTC speculation over its planned merger with Walgreens in recent weeks, was leaning in the direction that the merger would be approved after CTFN, a merger and acquisition trade publication, said a vote favoring the approval would be passed this week.

Its 6 1/8% notes due 2023 were up 2½ points to 97, a market source said.

Just last Thursday, the same notes were down by the same margin following a report that the merger would not pass, prompting a trader to say that blogs and news outlets were providing more speculation over “what the outcome is going to be.”

Rite Aid’s stock was up 94 cents, or 30.23%, to $4.05.

E&P up with gaining oil

As oil continued to pare losses from last week’s several-dollar plunge – West Texas Intermediate crude was up 48 cents, or 1.12%, to $43.49 – distressed exploration and production companies continued to rebound into Monday’s session.

California Resources’ 8% notes due 2022 were up ¾ point to a 60½-61 zip code, a trader said. Another market source said the notes were up 1 3/8 points to 60¾.

Noble Holdings International Ltd.’s 7¾% notes due 2024 were up ½ point to 76¼.

Denbury Resources Inc.’s 6 3/8% notes due 2021, on the other hand, were down 2¼ points to 55¼.

On Monday, the Plano, Texas-based oil and natural gas company presented at the J.P. Morgan 2017 Energy Equity Conference in New York, in which president and chief operating officer Chris Kendall, among other things, discussed how the company is dealing with its debt load.

Distressed roundup

Frontier Communications announced on Monday that it would increase the size of its current tender offer for six sets of notes to $1.15 billion from $800 million, which caused a slight uptick in its bonds, a market source said.

Its 6¼% notes due 2021 were up ¼ point to 89¾.

Pet retailer PetSmart Inc. saw a ½-point gain in its 5 7/8% notes due 2025, which finished at 95 3/8.

Off speculation that the company might complete a debt-equity swap, Valeant Pharmaceuticals’ bonds were mixed, though generally higher.

A market source said that a debt-equity swap in question might not cause a rally in bonds, though for others they might think that such a deal would provide Valeant the time to “de-lever using equity as a currency as opposed to selling businesses to generate cash to pay down debt.”

On the day, Valeant’s 5 7/8% notes due 2023 were up “¼ point or so” to 85, a market source said, while the 6 1/8% notes due 2025 were up 1/8 point to 84¼.

Devika Patel contributed to this review

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