Vaccine breakthrough lifts distressed, bankrupt borrowers4 min read . Updated: 10 Nov 2020, 11:17 AM IST
- Bonds linked to troubled industries such as travel and energy rally along with U.S. stocks
Progress on a coronavirus vaccine sparked a rally in distressed securities, giving hope to beaten-down companies teetering on the brink of default or a bankruptcy filing during the pandemic.
Pfizer Inc. and its German partner BioNTech SE on Monday said their vaccine candidate was found to be more than 90% effective in preventing Covid-19 infection after a study of almost 44,000 participants. As U.S. stocks jumped to fresh records, bonds linked to industries such as retail, travel and other sectors hit hard by the coronavirus also benefited.
Stocks and bonds linked to other pandemic-hit sectors, including energy producers, shopping centers, entertainment venues and restaurants also made up some of the value they lost as Americans avoided large gatherings and cut back on discretionary spending.
“Certainly all of the things that were deemed to be Covid-affected have shot through the roof," said Dan Zwirn, founder and chief executive of Arena Investors LP.
The vaccine developed by Pfizer and BioNTech proved better than expected at protecting recipients from Covid-19 in a pivotal study.
For many distressed companies hoping to avoid a debt default as the pandemic wears on, a vaccine rollout in coming months could mean the difference between bankruptcy or hanging on.
AMC Entertainment Holdings Inc., the world’s largest movie-theater operator, said last month it could run out of cash by year’s end with attendance sharply down and some cinemas in coastal regions still closed.
Social-distancing restrictions have been devastating for movie theaters, pushing owners large and small toward bankruptcy. Shares in AMC rose by nearly 80% early Monday to around $4 each, while shares in Regal Entertainment Group owner Cineworld Group PLC also jumped as investors reckoned a vaccine could help revive the industry.
Cruise companies including Carnival Corp. and Royal Caribbean International have weathered the pandemic by taking on more debt to stay afloat despite a sharp drop in passengers. A vaccine could help business resume next summer. The cost of insuring $1 million in Carnival debt against default fell to $250,000 on Monday from $320,000 on Friday, according to a bond trader, reflecting investor belief the company is more likely to pay its obligations in full. Shares of Carnival and Royal Caribbean soared by around 30% Monday.
Shares of Dave & Buster’s Entertainment Inc., a restaurant and arcade chain severely hurt by the Covid-19 pandemic, rallied about 40% from Friday to more than $26 a share.
Investors also bid up the debts of some companies already under chapter 11 protection. Bonds tied to bankrupt rental-car company Hertz Global Holdings Inc. jumped on hopes of a revival in business travel.
“Ultimately, we will have to wait for all the clinical trial data to be disclosed and analyzed," said Robert Kirby, a director in the corporate health-care group at Fitch Ratings Inc. “If [a vaccine] is approved, roughly 90% effective and safe, this should help a large number of people."
Debt linked to oil-and-gas production also rallied after months of slumping demand that pushed dozens of operators to default or file for bankruptcy. Some Occidental Petroleum Corp. bonds rose by close to 6%, while the company’s stock was up by more than 15%. Brent crude oil rose more than 9%.
“This is definitely good news on balance in that it should help global growth and also help many specific companies that had seen a big downturn in revenues post-Covid," said George Schultze, founder of Schultze Asset Management LP, a U.S. distressed securities manager. “Oil companies should benefit from a big increase in demand related to people getting out of quarantine world-wide."
Even the retail industry, battered by lockdowns, layoffs and the exploding popularity of Amazon.com Inc., got a boost. Macy’s Inc. stock rose 16%. Shares of mall landlord CBL & Associates Properties Inc., which filed for chapter 11 this month, rallied 17% in over-the-counter trading.
Global corporate defaults among companies tracked by S&P Global Ratings have reached 200, the highest annual number since 2009, the ratings firm said Friday. Yet the number of defaults and bankruptcies has fallen short of investors’ worst fears, owing largely to the extraordinary steps taken by the Federal Reserve to backstop the U.S. economy.
Still, certain investors have been burned. Some companies, eager to avoid a debt default, have engineered financial rescue deals with some of their lenders while angering others. Booking platform Travelport Worldwide Ltd., mattress maker Serta Simmons Bedding LLC and surfwear company Boardriders Inc. sparked lawsuits with their efforts to avoid bankruptcy.
A “clear bridge to a recovery" lowers the risk of these aggressive tactics, said Adi Habbu, a Barclays PLC credit analyst. “There’s less risk of a narrow group of creditors trying to put in an expensive rescue loan or some form of liquidity which other creditors may not be allowed to participate in."
This story has been published from a wire agency feed without modifications to the text