Welcome to the first edition of the “DC (Distressed Credit) Digest”.  I am Rich, the co-founder of Koyfin. As a former distressed high-yield trader now designer/developer, I wanted to shares some thoughts and observations I see in the distressed high-yield corporate bond market. During my trading days, I would share a daily distressed digest with clients with news and trading color. Now, I hope to share them with you. Feel free to follow me on Twitter @koyfinTrader as well as share any feedback. My DMs are always open.


Week of May 4th 2020

Notable Mentions

  • AMC Entertainment Holdings (AMC 10.50 ’25) newly issued 1st lien notes continue to trend lower, down 2-4pts to 81.00 to now yield 16.25% maturity. The senior sub notes continue to trade in the low 20s with the AMC equity trading down for the week ($4.10 -10.3%). The company’s market cap of $428M is still significant compared to market value of debt.

  • No surprise to anyone, Neiman-Marcus (NMG) filed a prearranged bankruptcy this past week while JC Penny (JCP) skipped payment of its term loans as it is expected to file as well. Neiman-Marcus (NMG) 2nd liens notes actively traded relatively unchanged around 8.00. Per the proposed plan, they are to receive 1% of the new reorganized NMG equity along with warrants to purchase additional shares.

  • Natural gas plays Antero Resources (AR) and Gulfport Energy Corp (GPOR) reported earnings this week, seeing both their bonds and equity move higher.  AR equity ($2.39 +20.7%) and GPOR equity ($3.13 +11.8%). AR 5.00 ’25 traded up 7pts to 62.00. GPOR 6.00 ’24 traded up 5pts to 55.00.

  • Chesapeake Energy Corp (CHK 11.50 ’25) 2nd lien notes traded as low as 2.75 before rebounding to 4.25 after S&P Global Ratings says it is a “virtual certainty” the company will have to file for bankruptcy. These notes which have still not paid their first coupon have about 4.375 points of accrued interest.

  • Hertz Global Holdings (HTZ 6.00 28) bonds rally from an all-time low of 10.00 to 14.00 as ABS creditors give them some additional time to try and avoid bankruptcy.


The Sea is Calling. Answer it “with more debt”.

It could be debated that companies like CCL and RCL have no merit being listed in the distressed digest. The three major cruise liners companies’ market capitalization range from 3.2B to as high as 10.3B. Even after their stock prices have fallen over 70% in the past year.

However, their businesses have been turned upside down due to COVID-19 and the industry is burning through cash at a rapid rate.

Estimated Monthly Cash Burn

  • Carnival Corp (CCL) — $ 1000M
  • Royal Caribbean (RCL) — $ 400M
  • Norwegian Cruise (NLCH) — $ 150M

Source: https://www.cruiseindustrynews.com/cruise-news/22841-how-much-money-the-major-cruise-companies-are-burning-through.html

All of these companies have their longer-dated debt yielding over 10%. Since shutting, the industry have been in capital raising mode and luckily has been embraced with open-arms from the debt markets (most recently Norwegian Cruise).

As the world prepares to open, Carnival recently announced they will begin to resume trips starting in August, while others are still taking a wait and see approach. As industry analysts believe it will be years before this industry recovers. The question remains for investors: What is the better play: the debt or the equity?

Cruise line stocks have rebounded over 50% since the March 18 lows but have remained volatile.

https://koyfin.com/s/JpqANaKCHX

Compared to their debt, the past 10 trading days have performed relatively strong.

https://www.koyfin.com/share/gZ4pS47YYU

Koyfin Cruise Lines Dashboard

https://www.koyfin.com/myd/5eb6b9c47dbc5678897b8586

Only a short period ago the majority if not all cruise corporate debt was traded within the Investment Grade community. Carnival Cruise which was rated “A-” back in 2016 with their debt trading around 3.50%. Now various cruise debt is trading from 10% to 20%. If the debt continues to weaken further, how can their equities continue to recover?

Below are some quick snapshots of these companies equity vs debt.


Carnival Cruise (CCL)

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

Carnival Corporation & Plc operates as a leisure travel company. The company’s ships visit approximately 700 ports under the Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, P&O Cruises (Australia), Costa Cruises, AIDA Cruises, P&O Cruises (UK), and Cunard brand names.

Stock Price, Market Cap & Enterprise Value — 1 Year Chart

https://koyfin.com/s/3JwmDhxLnt

CCL 11.500 due 04/2023 (Senior Secured Notes)
104.00 – 9.75% ytm

This massive $4.0B newly issued secured debt has performed well since it came. Backed by 86 of its cruise ships and IP has helped.

**Custom generated chart using FINRA Trace Data

CCL 6.650 due 01/2028 (Unsecured Notes)
80.00 – 10.5% ytm

Once traded above 120, these notes have settled traded around the low 80s for the past few weeks. If any added weakness to this part of the capital structure, it would be surprising not to see the equity follow.

**Custom generated chart using FINRA Trace Data


Royal Caribbean Cruises Ltd (RCL)

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

Royal Caribbean Cruises Ltd. operates as a cruise company. The company operates cruises under the Royal Caribbean International, Celebrity Cruises, Azamara Club Cruises, and Silversea Cruises brands.

Stock Price, Market Cap & Enterprise Value — 1 Year Chart

https://koyfin.com/s/8yQz6nwg9Y

RCL 3.700 due 01/2028 (Senior Unsecured Notes)
58.50 – 12.0% ytm

RCL has increased their secured line of credit, essentially putting additional pressure on all of the senior unsecured notes.

**Custom generated chart using FINRA Trace Data

RCL 5.250 due 11/2022 (Senior Unsecured Notes)
73.00 – 19.3% ytm

**Custom generated chart using FINRA Trace Data


Norwegian Cruise Line Holdings (NCLH)

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

Norwegian Cruise Line Holdings Ltd., together with its subsidiaries, operates as a cruise company in the North America, Europe, the Asia-Pacific, and internationally. The company operates the Norwegian Cruise Line, Oceania Cruises, and Regent Seven Seas Cruises brands.

Stock Price, Market Cap & Enterprise Value — 1 Year Chart

https://koyfin.com/s/mfyt9q6iGI

NCLH 3.625 due 11/2022 (Senior Unsecured Notes)
60.25 – 16.23% ytm

After raising additional debt this past week, NCLH senior unsecured notes held around the low 60s.

**Custom generated chart using FINRA Trace Data


Viking Cruises (VIKH)

**Private Company

Viking Cruises is a cruise line providing river and ocean cruises, as well as polar region expeditions. Its operating headquarters are in Basel, Switzerland, and its marketing headquarters in Los Angeles, California. The company has three divisions, Viking River Cruises, Viking Ocean Cruises and Viking Expeditions.

VIKH 6.250 due 05/2025 (Senior Unsecured Notes)
68.50 – 15.50% ytm

**Custom generated chart using FINRA Trace Data