American Airlines, AMC bonds surge on Pfizer vaccine news, election clarity; HighPoint tumbles on Bonanza Creek acquisition offer — Mid-Day Commentary

The leisure and travel sectors rode a positive wave this morning after Pfizer and BioNTech provided an encouraging update on their COVID-19 vaccine trial. Clarity over the US election further buoyed the markets, sending bonds, loans and equities higher.

Pfizer and its biotech partner announced today that first interim results from a phase III clinical study indicated their vaccine candidate is more than 90% effective in preventing COVID-19. Meanwhile, over the weekend, former Vice President Joe Biden was declared the winner in the 2020 presidential election after securing Pennsylvania. The President-elect wasted no time this morning, announcing members of his COVID-19 task force: Rick Bright, Vivek Murthy, David Kessler and Marcella Nunez-Smith. 

Bonds of the three major airlines American AirlinesUnited Airlines and Delta Air Lines flew higher this morning on the expectation of a quicker return to normalized travel conditions. 

American’s USD 1bn 6.5% senior unsecured notes due 2025 traded as high as 107.583 to yield 4.66% today, versus 87.344 to yield 9.967% on Friday (6 November), according to MarketAxess. Its USD 2.5bn 11.75% senior secured notes due 2025, meanwhile, changed hands at 106.5 to yield 9.966%, from trades at 99.75 to yield 11.807% on Friday. 

United’s USD 3.8bn 6.5% senior secured notes due 2027 climbed to 108.25 to yield 4.339%, compared to 106 with a 5.041% yield on Friday. Its USD 3bn 5.875% senior unsecured notes due 2027 traded today at 103.6 to yield 5.252%, versus 101.625 and a 5.591% yield on Friday.

Delta’s USD 3.5bn 4.75% senior secured notes due 2028, meanwhile, inched up to 106 to yield 3.868% from trades at 103.688 to yield 4.201% at the end of last week, according to MarketAxess. The airline’s USD 3.5bn 7% senior unsecured notes due 2025 traded today at 113.25 to yield 3.752%, versus 110.69 to yield 4.345%.

While the positive vaccine result is undoubtedly the best news that leisure credits have heard in eight months, the market shouldn’t expect an overnight cure for industry distress, said a sellside analyst and a trader.

The surge in market pricing today stems from short covering for battered industries like cruise lines and movie theatre operators, but also from increased optimism that the US and EU economies could be on the other side of the pandemic by 2H21, said the sellside analyst and the trader.

AMC Entertainment equity shot up 60% this morning to USD 3.95 with a USD 544m market cap, from Friday’s close of USD 2.49. The Kansas-based movie theatre operator’s second lien notes were perhaps the greatest beneficiaries this morning of the positive vaccine news.

The USD 1.4bn 12% PIK second lien notes due 2026 changed hands at 15 this morning, versus trades at 8 recorded at last week’s close, according to MarketAxess. Its USD 500m 10.5% first lien notes due 2025 jumped to 63 to yield 22% this morning, up from 56 on Friday.

The bid/ask on AMC’s USD 2bn Libor+ 300bps loan due 2026 rose ten points this morning to 68.056/71.333, up to 58.8/60.6, according to Markit.

The largest cruise line, Carnival Cruise, also leapt following this morning’s news. The company’s stock traded up 35% today to USD 18.57 from USD 13.82. It has a market cap of USD 16.7bn. A lot of that movement is short covering but the vaccine news is a step in the right direction, said the sellside analyst.

Carnival Cruise’s USD 4bn 11.5% senior secured notes due April 2023 bounced to 113 today to yield 5% from 110 on Friday, according to MarketAxess. Its USD 900m 9.875% second lien notes due 2027 traded at 112 to yield 6.5% this morning, up from 105.25 on Friday.

In other moves, HighPoint Resources’ stock tanked this morning after Bonanza Creek announced plans to acquire the exploration and production company for USD 376m. That’s less than half of the borrower’s debt stack, which totaled USD 780m as of 2Q20 ended 3 August.

Debtwire reported last week that HighPoint is working on a potential prepackaged plan entailing an M&A transaction.

Under its agreement, Bonanza and HighPoint will commence an exchange offer as well as solicitation of a prepackaged plan of reorganization under Chapter 11. Bonanza will issue 9.8m shares of common stock and up to USD 100m in senior unsecured notes in the transaction.

If the exchange offer and consent solicitation does not get participation from at least 97.5% of HighPoint’s outstanding senior unsecured notes, the issuer will complete the transaction in bankruptcy.

As of 30 September, Franklin held around 59% of the 7% senior unsecured notes due 2022 and 64% of the 8.75% senior unsecured notes due 2025.

Upon closing, Bonanza Creek’s balance sheet is expected to consist of approximately USD 50m of cash, USD 100m of senior unsecured notes, and approximately USD 150m of reserve-based lending debt.

HighPoint was one of the strategic bidders for Extraction Oil & Gas, which ran a dual-track process during bankruptcy. However, the company walked away from Extraction’s auction process because it received a better proposal from another regional player, as reported by Debtwire.

Upon completion of this transaction, Bonanza Creek shareholders will own approximately 68% of the combined company and HighPoint’s stakeholders will own approximately 32%. HighPoint shareholders will own roughly 1.6% of the pro forma company.

HighPoint and Fifth Creek Energy, which own roughly 46.5% of HighPoint’s shares, have entered into a support agreement whereby Fifth Creek will vote in favor of the merger. Additionally, the company, Fifth Creek, and holders of 73% of the 7% senior notes due October 2022 along with holders of 97% of the 8.75% notes due 2025 have entered into the TSA, which obligates them to support and vote in favor of the transaction.

The transaction is expected to close in 1Q21 under the out-of-court scenario and no later than in 2Q21 under bankruptcy. 

HighPoint’s stock fell 33.7% to USD 3.68 per share with a USD 16.431m market cap this morning. 

The 7% unsecured notes last traded at 24.368 on 30 September, while the 8.75% tranche changed hands at 22.25 on 19 October, according to MarketAxess.

HighPoint is working with AlixPartners, Tudor Pickering Holt & Co, Perella Weinberg Partners and counsel Kirkland & Ellis, as reported by Debtwire

2020 Debtwire

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