Glut of airline earnings spurs volatility; Diamond Sports rises on Comcast agreement for RSNs – Mid-Day Commentary

Most major airlines reported revenue losses in their 2Q20 earnings this week, but showed they had gained better footing on the cash burn front by the end of June. The glut of new information left investors to model out what the transportation space will look like in the near-term – and spurred active trading among airline bonds. 

United Airlines managed to match capacity to demand and rein in cash burn at the lower end of guidance. If the airline continues its conservative approach, keeping cash burn as low as possible, it may not need to raise additional liquidity in the capital markets for the next 18 months, as reported. 

United’s USD 3.8bn 6.5% senior secured notes due 2027 traded at 103.5 to yield 5.68% today, up from 103 yielding 5.796% on 22 July and 102.25 to yield 5.97% on 21 July before the report, according to MarketAxess. 

American Airlines contained its 2Q20 cash burn within guidance, despite posting an overall expected loss in revenue, as reported. The airline also disclosed that it has secured financing to bolster near-term liquidity and has no non-aircraft debt maturities until its USD 750m unsecured bonds mature in June 2022. 

American’s USD 2.5bn 11.75% senior secured notes due 2025 changed hands today at 89.75 to yield 14.719%, after ticking up as high as 91.75 to yield 14.014% yesterday after the report. That compares to trades at 90.75 to yield 14.406% on 22 July, according to MarketAxess. 

Alaska Air Group also reduced cash burn to USD 120m per month in June from USD 400m per month in March. The company also signed a non-binding letter of intent with the US Department of Treasury to obtain up to USD 1.1bn in additional CARES Act loans. 

Alaska’s USD 208m 8% secured notes due 2025 remained relatively unchanged after reporting yesterday with trades at 103.5 to yield 7.155% yesterday (23 July), according to MarketAxess. The notes softened today to trade at 103.25 to yield 7.213%. 

Despite the revenue drop, Spirit Airlines was the closest among the major airlines to breakeven free cash flow this quarter, as it burned only USD 1.5m per day in June from USD 9.5m per day in April. The company also announced its plan to sell stock, raising nearly USD 155.2m in cash and cover its losses from 2Q20. 

Spirit’s USD 175m 4.75% convertible notes due 2025 last traded today at 141.206, from 144.992 on 23 July after the report and compared to trades at 151.09 on 17 July, according to MarketAxess. 

Southwest Airlines cut cash burn to USD 16m per day in June from USD 30m per day in April, averaging USD 23m per day throughout the quarter. 

Southwest’s USD 1.25bn 4.75% senior unsecured notes due 2023 last traded today at 104.25 to yield 3.133%, down from a high of 104.405 to yield 3.077% yesterday (23 July) after reporting – from trades at 104 to yield 3.231% on 22 July, according to MarketAxess. 

Diamond Sports Group’s debt jumped this morning after parent Sinclair Broadcasting Group announced a multi-year renewal of its content carriage agreement with Comcast.

The agreement includes continued retransmission consent of 78 Sinclair television stations across 51 of Comcast’s major cable television markets. It also includes distribution of the 18 Diamond Sports regional sports networks (RSN).

Diamond Sport’s USD 3bn 5.375% senior secured notes due 2026 climbed to 86.75 this morning yielding 8.197% from 83.125 on 23 July while its USD 1.75bn 6.625% unsecured notes due 2027 jumped as high as 67.5 for a 14.033% yield from 59.75 on 23 July, according to MarketAxess. 

In the new issue space, Fortress Transportation & Infrastructure Investors’ USD 400m 9.75% unsecured notes due 2027 traded up to 101.5 this morning yielding 9.367% after pricing at par yesterday.

The offering was upsized from USD 300m with proceeds slated to repay the USD 220m due under its revolving credit facility and to fund general corporate purposes.

Epicor Software’s newly priced USD 1.925bn L+ 425bps TLB due 2027 and its USD 425m L+ 775bps second lien term loan due 2028 are quoted up this morning from their issuance prices.

The first lien is quoted in the 99.5/99.875 context after pricing at a 98 OID while the second lien is quoted at 101/102 after pricing at 98.5 OID, according to Markit. 

The company premarketed the deal last week, which allows portability for capital structure, as reported. Proceeds will refinance the borrower’s existing debt and fund a dividend to sponsor KKR.

Surgery Centers completed its USD 115m add-on to its existing USD 430m 10% unsecured notes due 2027 to fund general corporate purposes and growth-related activities.

The USD 545m 10% senior unsecured notes due 2027 traded as high as 104.25 this morning for a 8.63% yield after the add-on priced at 100.75 yesterday, according to MarketAxess.

2020 Debtwire

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