Energy bonds pressured; Transocean, NGL decline; Peabody improves; Endo notes soften

By Cristal Cody

Tupelo, Miss., July 27 – Distressed energy bonds took the brunt of weakness on Tuesday in the secondary market.

Transocean Inc.’s notes were down about 2 points to more than 3¼ points by the close after sliding 1 point to 2½ points on Monday.

The secondary market was a “little sloppy and a touch weaker,” a trader said. “There’s definitely an overall weakness and definitely on the energy side. Choppy waters until we get a better idea how the Delta variant is going.”

The U.S. Centers for Disease Control and Prevention on Tuesday updated its guidance for vaccinated people to wear masks indoors in public if in areas with high Covid-19 transmission rates.

NGL Energy Partners LP’s notes were down about 1¾ points during the session.

Meanwhile, PBF Holding Co. LLC’s bonds edged higher by about ¼ point.

Peabody Energy Corp.’s secured paper traded more than 2½ points better on the week.

Distressed pharmaceuticals bonds from Endo International plc and Mallinckrodt LLC pulled back.

Endo’s notes fell 1½ points during the session.

Mallinckrodt’s paper traded down about 1½ points on Tuesday.

Market tone weakened across sectors and assets, while oil settled lower on the day.

“It was a brutal day in the secondary,” another market source said. “The CDX was down 3/10 of a percent and the big ETFs were down. All the equities were down. Soft market.”

Market tone soft

Oil prices also were weaker.

North Sea Brent crude oil futures for September deliveries shed 2 cents to settle the day at $74.48 a barrel.

West Texas Intermediate crude oil benchmark futures for September deliveries settled Tuesday down 26 cents at $71.65 a barrel.

The iShares iBoxx High Yield Corporate Bond ETF closed the day down 12 cents at $87.70.

Overall market tone remained soft with earnings releases and the start of the Federal Reserve’s two-day monetary policy meeting on Tuesday in focus.

The Fed is not expected to make any rate changes at the July meeting, a source said.

The S&P U.S. High Yield Corporate Distressed Bond index kicked the week off down 0.05% on Monday.

Month-to-date total returns posted at minus 3.28% on Monday, while the index had year-to-date total returns of 23.67%.

Transocean bonds lower

In the secondary market, Transocean’s notes fell about 2 points to more than 3¼ points on Tuesday, a source said.

Transocean’s 8% debentures due 2027 (C/CCC) sank more than 3¼ points to head out under 72 bid on $3.5 million of paper traded.

The Vernier, Switzerland-based offshore driller’s 6.8% notes due 2038 (C/CCC-/) shed 2 1/8 points to trade at 52 3/8 bid by the close on more than $4.5 million of secondary volume.

Also Tuesday, Tulsa, Okla.-based midstream services provider NGL Energy Partners LP’s 7½% senior notes due 2026 (Caa1/CCC+) fell about 1¾ points to 85¼ bid, a source said.

Secondary volume totaled $3.5 million in the trade.

PBF modestly better

In other energy issues, PBF Holding’s 9¼% senior secured notes due 2025 (Ba3/BB/BB) recovered ¼ point by the close to trade at 92¼ bid on more than $15 million of secondary volume, a source said.

The Parsippany, N.J.-based petroleum refiner’s issue had slipped ¼ point on Monday on more than $16 million of secondary volume.

Peabody heads up

Peabody Energy’s 6 3/8% senior secured notes due 2025 (Caa1/D) traded up more than 1 point to the 77¼ bid area on over $4.7 million of secondary activity on Tuesday, a source said.

The notes have improved more than 2½ points week to date.

The issue has climbed from trading at 57¾ bid at the end of May and remains higher than the 72½ bid area seen at the start of the month.

S&P Global Ratings downgraded the company to SD from CCC on July 12 based on Peabody’s distressed debt repurchases and tender offer the agency said it views as tantamount to default.

The St. Louis-based coal producer announced on July 7 a tender offer to purchase up to $13.28 million of its 8½% notes due 2024 at a price equal to 73.84.

Peabody’s tender offer expires on Aug. 6.

S&P said it plans to lower the rating on Peabody’s letters-of-credit revolving facility to D once the tender is completed, as well as reassess the issuer’s credit and bond ratings.

Endo weakens

Endo International’s bonds took back some of the prior week’s gains on Tuesday after opening the week flat, a source said.

Endo Finance LLC’s 6% senior notes due 2028 (Caa2/CCC+) shed 1½ points to 68½ bid.

The notes climbed 10 points in the prior week following the announcement of settlements related to the opioid crisis.

The Dublin-based pharmaceuticals maker announced a $35 million opioid-related settlement in Tennessee on Thursday.

Endo’s announcement followed states’ reports of up to a $26 billion nationwide settlement with Johnson & Johnson and distributors AmerisourceBergen Drug Corp., Cardinal Health Inc. and McKesson Corp. over the opioid epidemic.

On June 20, New York attorney general Letitia James announced the state reached a $1.1 billion agreement with the distributors, while its lawsuits against companies including Endo Health Solutions, Teva Pharmaceuticals USA, Allergan Finance and Mallinckrodt were continuing separately.

Fitch Ratings said in a report on Monday that the settlement with the “big three” pharmaceutical distributors and Johnson & Johnson is a “positive development” for health care companies with contingent liabilities.

“Speculative-grade issuers have less financial flexibility to deal with large settlements,” Fitch said. “However, investment-grade issuers are better positioned to handle the liabilities.”

Mallinckrodt declines

New York’s lawsuit against Mallinckrodt is moving through U.S. Bankruptcy Court.

Mallinckrodt’s 5 5/8% notes due 2023 fell about 1½ points to 68 bid after improving on Monday, a source said.

The notes rose 7/8 point in the prior session.

The pharmaceuticals maker filed a new joint Chapter 11 plan of reorganization and received conditional approval of its disclosure statement on June 16.

A hearing to confirm the plan is scheduled for Sept. 21-22.

The company, based in Dublin and St. Louis, filed for Chapter 11 bankruptcy on Oct. 12, 2020 in the U.S. Bankruptcy Court for the District of Delaware.

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