Distressed market quiet heading into holiday break; energy names firm; Micron bonds, converts fall

By Paul Deckelman

New York, July 1 – Friday was the first day of July and the last day of the week – and saw only relatively tame trading in the distressed debt market, mirroring the situation in the larger junk bond market.

Activity was quiet during the abbreviated session heading into the July 4th holiday weekend in the United States, which will also see all fixed-income markets closed on Monday.

Traders said that energy names continued the pattern they had followed all week, moving higher as crude oil prices rose. They mentioned issuers such as Freeport-McMoRan Copper & Gold, Inc. – which drills for oil and natural gas besides mining for precious and industrial metals – and Chesapeake Energy Corp.

Another gainer was Intelsat SA in the wake of the underperforming communications satellite company’s financing deal that involved the issuance of $490 million of new privately-placed bonds.

The junk bonds and convertible notes of Micron Technology, Inc. retreated and its shares were hammered down after the computer-chip maker reported mediocre third-quarter earnings, offered weak guidance and said it would have to make workforce reductions in response to underperforming sales.

Puerto Rico defaulted on almost half of $2 billion in bond payments due Friday. However, traders did not report any immediate adverse impact on the troubled island commonwealth’s bonds.

Energy continues climb

Traders saw names in the energy patch continuing to improve on Friday – a far cry from a week earlier, when those credits “were getting killed,” one of them said, sliding at that time and again on Monday in tandem with plunging oil prices following the Brexit vote.

Oil prices pulled out of that two-day slump and then began moving back upward, occupying the high ground for most of the rest of the week.

The benchmark U.S. crude grade, West Texas Intermediate for August delivery, firmed by 66 cents Friday on the New York Mercantile Exchange, settling at $48.99 per barrel, after having fallen by $1.55 per barrel on Thursday.

The benchmark international grade, Brent crude for August delivery, likewise improved by 64 cents per barrel in Friday dealings on the London ICE Futures Exchange, settling at $50.35, after having lost 93 cents on Thursday.

Friday marked third gain in the last four sessions for both crude grades.

With crude prices providing a lift, energy credits like Chesapeake’s 8% notes due 2022 strengthened, with that paper up ½ point to 86 bid. More than $7 million of the Oklahoma City-based oiler’s notes changed hands.

Phoenix-based Freeport-McMoRan’s 3.55% notes due 2022 finished ¾ point higher at 88¾ bid on volume of over $9 million.

Elsewhere in the oil patch, a trader saw Denver-based exploration and production company Whiting Petroleum Corp.’s 5¾% notes due 2021 finishing at 91½ bid, up 7/8 point on the day, though only on “a handful” of trades.

Intelsat firms again on funding

A trader saw Intelsat’s 8% first-lien notes due 2024 up 1¼ points, closing at 99¼ bid, with volume a relatively active $16 million.

Another market source said that it looked like the Intel 8s were “about unchanged” around the 99 bid level.

However, he said that he had seen some activity in the Luxembourg-based communications satellite company’s new 9½% senior secured notes due 2022.

He saw the bonds at 105 bid on Friday, “so obviously, they’ve traded up a good bit” from the 98 price at which the company issued that $490 million of new paper earlier in the week.

Intelsat announced at mid-week that it had placed the bonds with institutional investors under privately negotiated agreements. Proceeds will be used to fund the company’s previously announced tender offers for three series of its existing bonds.

A market source saw Intelsat Jackson Holdings’ 7½% notes due 2021 down 5/8 point on the day at 68¾ bid.

Micron lower after results disappoint

One of the few credits seen moving around on the downside was Micron Technology’s 5 5/8% notes due 2026, which were down 1¼ points on the session at 82¾ bid.

At another desk, a market source quoted the Boise, Idaho-based computer-chip manufacturer’s 5½% notes due 2025 almost 1 point lower at 84 3/8 bid.

When informed that Micron had reported less-than stellar quarterly numbers, he said “that’ll do it.”

In the convertibles market, Micron’s paper was lower, but not trading actively, along with a decline I nthe stock after it reported a quarterly loss, offered weak guidance and announced job cuts amid soft demand for chips for personal computers and struggles to sell products for mobile phones.

Excluding items, earnings beat expectations, but revenue missed. The company’s Nasdaq-traded shares closed down $1.26, or 9%, at $12.50. Volume of 67 million shares was more than twice the usual turnover.

Micron’s 3% convertibles due 2043 were last at 74.45, according to Trace data. That was off only 1 point or 2 points from previous levels. Micron 2.375% convertibles, or the C tranche, traded at 138.5 from about 145 as its recent high.

Among Micron’s other convertibles, the 3.125% convertibles due 2032, or D convertibles, were indicated down to 140 from 153; the Micron 1.625% convertibles, or the E convertibles, were seen off at 132 from 141; and the Micron 2.125% convertibles, or the F convertibles, were indicated down to 135.9 from 144.50, according to a pricing source.

Micron reported a loss for the fiscal third quarter ended June 2 of $215 million, or 21 cents per share, which was down from earnings of $491 million, or 42 cents per share, in the year-earlier quarter. Revenue fell 25% to $2.9 billion.

Excluding items, the company posted an adjusted loss of 8 cents a share. Analysts had forecast a loss of 9 cents per share on revenue of $3 billion.

Micron’s new cost reduction plan will reduce its workforce by about 7.5%, representing cuts of about 2,400 positions from its 32,000 employee workforce.

Puerto Rico debt little moved

Several traders said that they had not seen any kind of real activity in Puerto Rico’s 8% general obligation bonds due 2035 – despite the troubled island commonwealth’s default on around $1 billion of debt obligations that were due on Friday.

One of the traders said that he had seen “one trade, maybe two trades” in the paper.

He quoted the bonds in a 67 to 67½ bid context, which he said was up a little from the levels seen around mid-week, when they were around the 65 to 66 area.

He said the small number of trades was “not really enough” to give a representative picture of how the debt was doing.

The lack of activity came against a backdrop of Puerto Rico’s failure to pay almost half of $2 billion in bond payments that were due Friday.

It marked the commonwealth’s first-ever default on its constitutionally guaranteed debt.

Puerto Rico failed to make payments on some $779 million in general obligation debt, while its Government Development Bank also skipped payments on some other bonds.

The island’s governor, Alejandro García Padilla, struck a defiant note following the default, telling reporters in San Juan that Puerto Rico had virtually become “a colony of Wall Street,” over the period of many years that it had borrowed billions of dollars to finance development there.

He said the non-payment of the roughly $1 billion of obligations due Friday was the start of “a process of putting [control of Puerto Rico and its economy] back in the hands of Puerto Ricans.”

President Obama on Thursday signed into law legislation setting up a panel that will oversee a restructuring of Puerto Rico’s debt, while at the same time giving the commonwealth a stay against creditor litigation.

About half of the G.O. debt that went unpaid on Friday is covered by commercial bond insurance companies.

-Rebecca Marvin contributed to this review

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