Energy takes a back seat in distressed world as 21st Century, Abengoa, Hertz bonds fall on news

By Paul Deckelman

New York, Nov. 14 – The distressed-debt market ended the week on Friday with the heretofore hard-hit energy sector – recently reeling from falling oil prices – seeming to stabilize a little as crude prices steadied. Credits which had been getting clobbered earlier in the week, including California Resources Corp. and Samson Investment Co. were seen actually doing better on the day.

The focus instead turned to non-energy credits that came under scrutiny for a variety of reasons.

Spanish engineering and construction company Abengoa SA’s bonds slid on investor confusion over whether or not some of the company’s debt was considered to be recourse debt – meaning the parent company is liable for it – or non-recourse.

Cancer-care company 21st Century Oncology Holdings Inc.’s paper was off as federal regulators questioned whether the company improperly billed Medicare for procedures that its patients underwent.

Hertz Corp.’s several issues of bonds were seen skidding lower, and on considerable volume, after the vehicle-rental giant confirmed investor worries that its accounting issues ran even deeper than previously thought, saying it would restate its results for 2012 and 2013, on top of the earlier restatement of its 2011 numbers.

Another company whose bonds got pounded was automotive components manufacturer Chassix, Inc. – although unlike Abengoa, 21st Century Oncology and Hertz, there was no immediate information available as to the likely catalyst for that downside move.

Energy less a focus

A trader said that “energy continues to be a driver” of activity in the distressed-debt market and the larger high-yield market, where he said “a lot of guys have been beaten down.” including such names as California Resources, Halcon Resources Corp. and SandRidge Energy Inc.

He said that Houston-based Halcon “has an enormous amount of debt” that it has to service, while Oklahoma City-based SandRidge “has been burning through its cash.” And Los Angeles-based California Resources, he said, “doesn’t really hedge” against price movements.

As a consequence, he said, “the lower oil prices hurts these guys.”

However, he noted that oil prices were “back up about a dollar or two,” with Brent crude finishing up $1.92 per barrel in New York trading Friday, at $79.41, while benchmark West Texas Intermediate crude was unchanged on the day at $75.82.

The steadier oil prices, a second trader said, seemed to take some of the edge off the recent slide in the energy names.

“I don’t know if there were any outliers today,” he said.

For instance, Halcon’s 8 7/8% notes due 2021 – which sank nearly 3 points on Thursday to the mid-83 level on heavy volume of more than $24 million, were about unchanged on Friday in that 83-84 context, he said, on a lot less volume.

Other recently hard-hit oil names that seemed to have steadied included the California Resources 6% notes due 2024. On Thursday, that credit had been the most active junk issue, plunging some 2½ points to 97¼ bid, with over $82 million changing hands. But on Friday, while volume was still a pretty active $30 million, the bonds were actually up by ¼ point to end at 97½ bid, a market source said.

And Tulsa, Okla.-based E&P operator Samson Investment Co.’s 9¾% notes due 2020, a recent notable underachiever, was seen up by a full 2 points on Friday, closing at just under 71 bid.

Abengoa under pressure

With the energy names at least temporarily steadier, distressed players had to look elsewhere for action, but they did not have to look very far.

A trader noted that Abengoa was getting beat up,” with its 8 7/8% notes due 2017 nose-diving into the mid-70s, while “yesterday they were at 101.”

Its 7¾% notes, he said, had plummeted to around 76 bid on Friday, while “just two days ago, they were at 104-105.”

Still, he allowed, “I don’t know how much they actually traded.”

But he called Abengoa, “the blow-up du jour.”

The slide was triggered by the company’s assertion, when it reported earnings this week, that some $630 million of dollar- and euro-denominated junk bonds that it issued in September were non-recourse debt, meaning, debtors would only have claims on the collateral assets backing the bonds and not on the parent company itself should an event of default occur.

Many investors had been under the impression that the September debt was in fact recourse debt; analysts said the resulting confusion could create problems for Abengoa should it attempt to refinance any of its current obligations.

Hertz is hurting

Elsewhere, a trader noted that Hertz Corp.’s paper “was active on the accounting stuff,” after the Naples, Fla.-based vehicle-rentals giant’s corporate parent, Hertz Global Holdings Inc., said in a regulatory file that it would restate its results from 2012 and 2013 – thus dropping the other shoe, as some investors had feared, after indicating earlier this year that it would have to restate its 2011 results because of accounting issues and would consider doing the same for 2012 and 2013.

As a result, Hertz warned that it “does not currently expect to complete the process and file updated financial statements before mid-2015, and there can be no assurance that the process will be completed at that time, or that no additional adjustments will be identified.”

The news sent the company’s 6¼% notes due 2022 down some 1¾ points on the day to 99 7/8 bid, with over $39 million traded, putting the credit high up on the high yield Most Actives list.

Its 5 7/8% notes due 2020 lost 3/8 point and its 7½% notes due 2018 eased by 1/8 point, each on active volume of over $15 million, ending at 100¼ bid and 104 bid, respectively.

Hertz’s New York Stock Exchange-traded shares meanwhile plunged by $1.04, or 4.58%, to end at $21.69, on volume of 49.8 million shares, more than four times the norm.

In its 8-K filing with the Securities and Exchange Commission, the company and its subsidiaries said that they had obtained an extension to waivers from their lenders through June 30, 2015 in connection with the failure to file some quarterly reports and certain of its subsidiaries’ failure to file statutory financial statements within specified time periods. The company originally obtained waivers on Nov. 4 effective through Nov. 14.

In addition, Hertz’s special-purpose subsidiaries Hertz Vehicle Financing LLC and Rental Car Finance Corp., which previously obtained similar waivers from the required noteholders of medium-term asset-backed notes issued by Hertz Vehicle Financing and Rental Car Finance, effective through Dec. 31, will seek extensions for those waivers.

Hertz said it also expects to seek waivers from the lenders under its credit agreement dated March 11, 2011 with respect to defaults under the senior term facility arising out of the company’s failure to timely file its periodic reports and in connection with the restatement of its 2011, 2012 and 2013 financial statements.

21st Century Oncology off

The bonds of 21st Century Oncology were seen lower Friday on the news that the Justice Department is investigating whether the Fort Myers, Fla-based cancer-care company improperly billed Medicare for a procedure when it administered radiation therapy to patients.

The revelation came in a company regulatory filing.

It was the second time this year that 21st Century has faced federal scrutiny.

It said that it is “providing the requested documents and information.”

Meanwhile, its 9 7/8% notes due 2017 lost 3 points to end at 95¾ bid, while its 8 7/8% notes due 2017 fell by 1½ points to 101½ on volume of over $38 million, making the latter credit one of the day’s busiest junk bond movers.

Chassix chokes

Also seen lower was Chassix’s 9¼% notes due 2018, which slid by nearly 16 points to close at 60¼ bid, a market source said, on volume of over $32 million.

After opening around the same 75 bid level at which they had gone home on Thursday, the bonds actually moved up to highs 80 bid, before giving it all back and then some in their headlong plummet to 60 bid.

Traders were unaware of any announcements by the Southfield, Mich.-based automotive chassis components manufacturer, regulatory filings or other news that might explain the breath-taking fall in the bonds.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.