Talen Energy, Range Resources strengthen as natural gas prices climb; Washington Prime debt collapses on missed coupon – Mid-Day Commentary

Inclement weather in the southern and central US drove energy prices higher today, with power and natural gas issuers benefitting from an uptick in their debt, according to two traders, a buysider and a sellsider. 

Amid higher demand, natural gas prices topped USD 3.047 today, up 5.01% from yesterday. 

The surge pushed Talen Energy’s USD 550m 6.5% senior unsecured notes due 2025 to 88.5 to yield 9.848% today, versus 84.5 to yield 11.137% on 12 February, according to MarketAxess. Meanwhile, E&P company Range Resources’ USD 850m 9.25% senior unsecured notes due 2026 climbed to 110.25 with a 5.269% yield, from 109.5 to yield 6.027% on 12 February. 

Antero Resources’ USD 600m 5% senior unsecured notes due 2025 also gained to 99.75 with a 5.069% yield, from 98.25 to yield 5.486% on 9 February, according to MarketAxess. The borrower’s USD 500m 8.375% senior unsecured notes due 2026 inched up to 10.25 to yield 5.829%, from 109 to yield 6.218% on 11 February.  

On the downside, Washington Prime Group’s debt structure dropped after the company announced this morning that it would skip the USD 23.2m coupon due 15 February on its USD 750m 5.95% senior unsecured notes due 2024, according to SEC filings. The real estate investment trust (REIT) elected to enter into a 30-day grace period and is working with Kirkland & Ellis and Guggenheim Securities as it continues discussions with its debtholders.

Bondholders formed a group last year and retained Morrison Foerster and Houlihan Lokey for the restructuring talks, according to SEC filings. 

The Ohio-based mall REIT’s 5.95% unsecured notes tumbled to 61.75 to yield 22.9% today, from 73 with a 17% yield last week, according to MarketAxess. Its stock traded down 33% today to USD 8.12 after closing on Friday at USD 12.05. It has a market cap of USD 168m.

Washington Prime has been working with Kirkland & Ellis since last summer when the firm advised the mall REIT on an amendment negotiation with lenders to its Bank of America-led USD 997m credit facility due December 2022 and a PNC-led USD 340m secured term loan due January 2023, according to SEC filings. The amendments provide covenant relief through 3Q21.

As of 3Q20 ended 30 September, Washington Prime listed USD 95m in cash on hand, and estimated in a December 2020 company presentation that it would have USD 125m-USD 135m in cash on its balance sheet at year-end. By comparison, the REIT finished 2019 with USD 41m in all-cash liquidity. Washington Prime has USD 291m in mortgage debt maturing in 2021 and the USD 1.1bn in mortgage and corporate debt coming due in 2022, according to SEC filings.

“The big issue here is the cash burn,” said a sellside analyst. “We don’t really know how much it is because the company, like many REITs, continues to book revenue despite not taking in cash rent payments.”

Revenue for the nine months ended 30 September 2020 was USD 375m, down 23% year-over-year from USD 491.4m.

GEO Group shares sunk in early trading after the REIT, which invests in private prisons and mental health facilities, posted a 7% decline in revenue for 4Q20 to USD 578.1m, according to a company press release.The issuer further forecasts a decline in revenue for full-year 2021 to USD 2.24bn-USD 2.27bn from the USD 2.35bn booked in 2020. 

The main concerns for the credit are two-fold. The first is the near-term maturity of its USD 193m 5.875% senior unsecured note due 15 January 2022, while the second is federal government executive orders that threaten the prison REIT’s topline, said a  sellside analyst and a buyside analyst.

The company’s stock traded down 7% this morning to USD 8.21 with a market cap of USD 991m after it released the earnings report. The near-term notes last traded on 11 February at 97 to yield 8.5%, firmer than January and in line with levels at the start of the year, according to MarketAxess. Meanwhile, its USD 350m 6% unsecured bond due 2026 last traded on 9 February at 74 to yield 13%. 

The company plans to address the 2022 maturity in 1H21, according to company comments on today’s 4Q20 earnings conference call. 

The company reported USD 283m in cash on hand at year-end following a USD 250m draw on its revolver in 4Q20. Cash flow from operations is positive and continues to grow thanks to another dividend cut to 25 cents per share in February from 35 cents at the start of the year, noted a buyside analyst. The company is also well aware of its looming maturities and made USD 100m in open market purchases of its bond debt in 4Q20, the source said.

“If things don’t get materially worse, GEO Group should have enough cash flow to repay those [near-term] bonds,” said the buyside analyst.

However, the company is expected to lose up to 6% off its topline after President Joe Biden signed an executive order that directs the Department of Justice (DOJ) to phase out its use of private prisons.

2021 Debtwire

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