Mallinckrodt better after settling suit; L Brands down as tender offer starts

By James McCandless

San Antonio, June 5 – The distressed space spent another day fixated on pharmaceutical and retail tranches with news affecting both sectors.

Mallinckrodt plc’s notes closed the session better after announcing that it had settled a U.S. Department of Justice lawsuit for more than $15 million.

Sector peer Teva Pharmaceutical Industries Ltd.’s issues finished lower.

Meanwhile, in retail, L Brands, Inc.’s paper traded down as the company began a tender offer for four series of notes and priced a new issue.

Pet supplies retailer PetSmart, Inc.’s notes continued an upward trend as it gears up for an initial public offering of e-commerce unit Chewy.com.

A bad day for oil futures led to similar dips for Denbury Resources, Inc.’s, Chesapeake Energy Corp.’s and California Resources Corp.’s issues.

Elsewhere, manufacturer U.S. Steel Corp.’s paper moved higher as potential tariffs against Mexico continue to be threatened by President Trump.

In telecom, Frontier Communications Corp.’s notes improved, continuing to capture the market’s attention.

Mallinckrodt better, Teva down

Mallinckrodt’s notes closed the Wednesday session better, traders said.

The 5¾% notes due 2022 rose 2¾ points to close at 85¾ bid. The 5 5/8% notes due 2023 improved by ½ point to close at 72½ bid.

On Wednesday, the Staines-upon-Thames, England-based pharmaceutical name announced that it had reached an agreement in principle with the U.S. Department of Justice to settle an investigation into the legacy sales and marketing activities of Questcor Pharmaceuticals Inc., which the company acquired in 2014.

The company is expected to pay just over $15 million.

Despite the settlement, the government is investigating Questcor’s charitable activities dating from 2010 to 2014.

The market is also anticipating any developments in Mallinckrodt’s suit against U.S. health authorities that could decide whether or not the company will have to return millions in Medicaid rebates.

“Their legal risk isn’t gone yet,” a trader said. “Overexposure is starting to become a concern.”

Petach Tikva, Israel-based sector peer Teva’s issues moved downward.

The 3.15% notes due 2026 fell ½ point to close at 78¾ bid. The 4.1% notes due 2046 shaved off ¼ point to close at 67¼ bid.

Working through its own legal battles, market analysts have weighed in on how much money the company would be on the hook for in potential settlements.

L Brands lower

Meanwhile, in retail, L Brands’ paper ended the day moving downward, market sources said.

The 3.15% paper due 2026 slid ½ point to close at 78¾ bid. The 5¼% paper due 2028 moved lower by ¼ to close at 90½ bid.

The Columbus, Ohio-based retailer announced on Wednesday that it had begun cash tender offers from four series of notes, Prospect News reported.

The company is offering to purchase any and all of its outstanding 7% senior notes due 2020 and up to $449 million of its outstanding 6 5/8% senior notes due 2021, its 5 5/8% senior notes due 2022 and its 5 5/8% senior notes due 2023.

Concurrently, after the market close, the name priced a $500 million issue of 7½% 10-year senior notes at 98.286 to yield 7¾% in order to partially fund the tender offer.

PetSmart up

Elsewhere in the space, PetSmart’s notes were on a positive track, traders said.

The 8 7/8% notes due 2025 tacked on 1½ points to close at 96½ bid. The 5 7/8% notes due 2025 rose ¾ point to close at 95½ bid.

Ahead of an IPO for its e-commerce segment Chewy, the Phoenix-based pet supplies retailer told the Securities and Exchange Commission that it values the brand at $7 billion.

The company is gearing up to take Chewy public at $17 to $19 per share.

Oil drops

As oil futures took a negative track, the sector’s distressed tranches followed, market sources said.

Houston-based independent oil and gas producer Denbury’s issues slid.

The 6 3/8% notes due 2021 declined by 3 points to close at 81 bid. The 5½% notes due 2022 fell 1¼ points to close at 69¼ bid.

On Wednesday, S&P Global Ratings lowered the company’s issuer credit rating and its senior subordinated notes rating.

Oklahoma City, Okla.-based sector peer Chesapeake Energy’s paper also declined.

The 8% paper due 2027 lost 2¼ points to close at 88¼ bid.

Los Angeles-based producer California Resources’ notes also saw negative activity.

The 6% notes due 2024 dropped 2¾ points to close at 61¾ bid. The 8% notes due 2022 moved down ¼ point to close at 70½ bid.

West Texas Intermediate crude oil futures for July delivery ended $1.80 worse off, finishing the session at $51.68 per barrel.

North Sea Brent crude oil futures for August delivery closed at $60.63 per barrel after a $1.34 drop.

U.S. Steel improves

In manufacturing, U.S. Steel’s issues saw an improvement, traders said.

The 6 7/8% notes due 2025 added ¾ point to close at 89¾ bid. The 6¼% notes due 2026 rose ¾ point to close at 85½ bid.

The Pittsburgh-based steel manufacturer’s structure traded positively on Wednesday as President Donald Trump continued to threaten to impose exponential tariffs on all imports from Mexico.

The move exacerbates an already volatile climate for names immediately impacted by trade conditions.

“Just when you think things are settled it starts all over again,” a trader said.

Frontier gains

Telecom name Frontier’s paper was once again seeing improvements, market sources said.

The 10½% paper due 2022 picked up 1½ points to close at 74½ bid. The 11% paper due 2025 rose 1 point to close at 64¾ bid.

One of the perennial favorites in the distressed telecom sector, the Norwalk, Conn.-based wireline communications name has seen a boost in attention after announcing a $1.3 billion asset sale.

The debt-reducing move sees it shifting away from markets in the Western United States.

© 2015 Prospect News.
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