Community Health trades up on YoY earnings gains; Avis and Hertz climb on used car sales strength – Mid-Day Commentary

Community Health Systems‘s debt and equity moved higher after the healthcare provider reported its 2Q20 earnings showing a roughly 13% increase in adjusted EBITDA compared to 2Q19.

The hospital operator booked USD 454m in adjusted EBITDA for the quarter ended 30 June compared to USD 402m for the same period last year, according to a press release yesterday evening. The increase was largely driven by USD 448m in payments through the Public Health and Social Services Emergency Fund intended to compensate healthcare providers for lost revenues and expenses due to the COVID-19 pandemic. The funds are not required to be repaid.  

The borrower’s USD 1.35bn 8.125% second lien notes due 2024 changed hands at 63.75 yielding 22.526% compared to 62.021 yesterday morning, while the USD 2.1bn 8% first lien notes due 2026 ticked up to 101.375 for a 7.156% yield from 100.75 yesterday, according to MarketAxess.

Community’s stock is up 16.6% to USD 4.8 per share and a USD 570.8m market cap. 

Bonds for Avis Budget Group and Hertz Corp rose this morning following Avis’s 2Q20 earnings release. Despite a 67% downdraft in 2Q20 revenues, Avis sold over 100,000 vehicles in 2Q20, reducing its fleet by 26%, according to its earnings release. That’s important because it shows health in the used car market, which is critical to Hertz’s Chapter 11 restructuring, said a sellside analyst.

Avis’s USD 400m 5.75% senior notes due 2027 traded at 95 to yield 6.6% this morning, up from the last reported institutional trade of 90 on 23 July to yield 7.5%, according to MarketAxess. The company’s stock was up 2% to USD 28.17 for a market cap of USD 1.95bn. Hertz’s 500m 6.25% unsecured note due 2022 traded at 41.875 up from 39.5 at yesterday’s close.

Avis’s ability to reduce the size of its fleet provides optimism that Hertz can do the same. Last week, Hertz reached a compromise with its ABS lenders that would allow Hertz to reduce its fleet by 180,000 vehicles. Concerns had arisen among investors that both Hertz and Avis would flood the used car market and depress prices, reducing recoveries for Hertz creditors.

But recent data from the Manheim Used Vehicle Value Index showed more resilience in the used car market than Avis and Hertz bondholders had predicted, said the sellside analyst. Wholesale used vehicle prices rose 11% YoY for the first half of July, and increased 4.4% sequentially from June.

“If the mid-month value of the Manheim Index holds for the full month, the Index will set a record high for the second consecutive month,” according to the Manheim Market Report.

Boeing’s bonds edged down today after the aerospace giant reported a wider-than-expected 2Q20 revenue decline and earnings per share loss. The company also expects to further cut production to match depressed demand for new planes and travel. 

The company raked in USD 11.8bn of revenue in the quarter, compared to consensus estimates of USD 13.16bn. Boeing also lost USD 4.79 per share on an adjusted basis, compared to expectations of a USD 2.54 per share loss. 

Regulators aren’t expected to clear the grounded 737 Max to fly again before the fall, which has driven cancellations and curbed new orders. The company also confirmed its plans to slow production — cutting production on the 787 Dreamliner, delaying the ramp-up of the 737 Max and ending production of the 747 in 2022.

Boeing’s USD 3.5bn 4.875% senior unsecured notes due 2025 traded today at 107.948 to yield 3.035% from trades at 108.688 yesterday, according to MarketAxess. The USD 1.25bn 3.75% senior unsecured notes due 2050 traded today at 92.414 to yield 4.201% from trades at 94.68 to yield 4.061% on 27 July.

Boeing’s equity shed 3.92% to trade at USD 164.15 per share and a market cap of USD 92.423bn. 

Boeing customer American Airlines‘s bonds ticked down this morning in response. In American’s earnings last week, the airliner stated that it is working with Boeing to finance 17 aircraft, with delivery expected in late 2020 to early 2021, as reported. Sources added that the delivery from Boeing would allow American, under a return to normalized travel patterns, to get additional planes in the air and bolster its liquidity. 

American’s USD 750m 5% senior unsecured notes due 2022 last traded today at 55.625 from trades at 57 yesterday, according to MarketAxess.

American’s stock traded down 3.44% to USD 11.36 per share and a market cap of USD 5.77bn. 

Meanwhile, though its bonds remained muted today, Boeing supplier Spirit Aerosystems‘s equity traded down in reaction to Boeing’s earnings. The shares moved down 5.34% to USD 20.37 per share and a market cap of USD 2.143bn. 

iQor’s loans traded up yesterday as the issuer works to finalize a restructuring support agreement that could result in a first lien holder recovery of 48.5 cents of takeback paper along with 96% of the reorganized equity, as reported. The second liens are slated to get the remaining equity. iQor and certain of its lenders entered into a restructuring agreement last week.  

Its USD 629m first lien Libor+ 500bps (1% floor) due 2021 climbed to 67.875/72.875 today, up from the 62.65/66.58 context on 23 July and 53.107/56.107 in June, but down from an 83/85 context in early March prior to the pandemic-related selloff, Markit shows.

2020 Debtwire

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