Please remain seated as we begin our descent.

Covid-19 has caused a 90% drop in air travel from a year ago. As demand disappears, airlines will have to navigate through some tough turbulence.


5 min read
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Distressed Digest

May 11th 2020

Currently tracking 237 credits from 145 companies.

If you wish to view the Distressed Watchlist within Google Sheets, please request access to it and I will shortly grant you access to it.

https://docs.google.com/spreadsheets/d/17CE82ulzQX9KuRBMBeWXdyyx6LSjXqdaTepEc27A-8s/edit#gid=1148751060

Highlights

  • Cruise credits continue to weaken as Royal Caribbean and Viking Cruises brought new secured bond deals this past week. After adding more secured debt, the RCL unsecured notes dropped by 5+ points. RCL 3.700 ’28 ended up down 8-10 point to around 50.00 — 14.6%.

  • Airlines equities and unsecured notes had a tough week. Both American Airlines (AAL) and United Airlines (UAL) saw their unsecured notes fall significantly across the capital structure.
    See more below.

  • Staples, a supplier of business related products owned privately by Sycamore Partners, ended its recent credit rally. SPLS 10.75 ’27 unsecured notes fell back from 72.00 to 58.00 — 23.2% ytm.

  • Majority of energy credits were flat to higher for the week.
    Matador Resources MTDR 5.875 ’26 up 4pts to 65.00 — 14.5% ytm.
    Laredo Petroleum LPI 9.500 ’25 was higher by 5pts+ to 58.75 — 25.0% ytm.

  • Briggs & Stratton (BGG), a manufacturer of gasoline engines, continued its struggle with upcoming near-term maturities. The unsecured BGG 6.875 due 12/15/2020 notes fell from 45.00 to 25.00.

  • Ultra Petroleum filed for bankruptcy this past week, it was the second time in the past four years. The second lien UPL 11.000 ’24 PIK notes traded around 7.00 and are set to receive around 2.5% of the reorganized company plus any litigation recovery value.

  • J.C. Penny Company (JCP) filed for bankruptcy late on Friday after releasing an earlier 8-k that day stating they made the skipped payment on its senior secured term loan credit facility.

  • Most likely next is California Resources (CRC). The second lien CRC 8.00 ’22 are currently trading around the 2.00 – 4.00 context.


Please remain seated as we begin our descent.

Covid-19 has caused a 90% drop in air travel from a year ago. As demand disappears, airlines will have to navigate through some tough turbulence. A taxpayer-funded relief package of over $50 billion and reduction of routes might not be enough to keep airlines out of bankruptcy.

It seems that Boeing’s CEO (Dave Calhoun) might agree. In an NBC interview this past week, he made the following comment that “a U.S. airline bankruptcy is likely in 2020”.

By the end of trading week, all top four major US airline carries American Airlines (AAL), Delta Air Lines (DAL), United Continental Holdings (UAL) and Southwest Airlines (LUV) closed at new 52-week lows.

Major US Airlines 1-Week Performance

Major US Airlines YTD Performance

As these companies work to increase their liquidity as much as possible. The credit markets, which have been open to a flood of recent deals, has become somewhat selective in the past week or so. A week ago, United canceled a proposed $2.25B bond sale which was to be secured by some of its aircrafts. But, bond investors questioned the recovery value of these aircrafts in the event of a United default and terms could not be agreed on between creditors and the company.

Major US Airlines Unsecured Credit Trading Levels

Out of the four majors, American Airlines (AAL) and United (UAL) are trading at now trading at distressed recovery levels. While Delta Airlines (DAL), whose balance sheet is considered strong by some, now have their unsecured notes trading between 10-16% yields. Southwest Airlines (LUV) remains a steady investment grade credit due to its low-leverage.

US-Traded Airlines Financial Preview Dashboard

https://www.koyfin.com/myd/5ebfdd5de991736b4fb745fc

How much lower could these airline stocks and unsecured notes go?

Who will be the winners and losers in this airline industry?

One thing is certain, the ride will be a bumpy one.


AIRLINE CREDITS

American Americans (AAL)

https://www.koyfin.com/snapshot/s/AAL

https://koyfin.com/s/D1weASnQFw
custom generated using FINRA data

United Continental (UAL)

https://www.koyfin.com/snapshot/s/UAL

custom generated using FINRA data
custom generated using FINRA data

Delta Air Lines (DAL)

https://www.koyfin.com/snapshot/s/DAL

custom generated using FINRA data
custom generated using FINRA data

Southwest Airlines (LUV)

https://www.koyfin.com/snapshot/s/LUV

custom generated using FINRA data

Matador Resources (MTDR)

https://www.koyfin.com/snapshot/s/MTDR

custom generated using FINRA data

Briggs & Stratton (BGG)

https://www.koyfin.com/snapshot/s/BGG

custom generated using FINRA data

Royal Caribbean (RCL)

https://www.koyfin.com/snapshot/s/RCL

custom generated using FINRA data

Written By
Rich Meatto

Co-founder of Koyfin. Former distressed high-yield trader now creating, designing, and developing a financial platform you desire. During my trading days, I would share a daily distressed digest with clients containing trading color and news. I share them with everyone in my spare time. Feel free to follow me on Twitter and my DMs are always open.