PG&E drops on bankruptcy speculation; Hornbeck mixed on exchange offer

By James McCandless

San Antonio, Jan. 8 – Tuesday in the distressed space was dominated by a utility under scrutiny and oil on the rise.

PG&E Corp.’s notes sank, taking over the volume in the distressed space as the market worried about a ratings downgrade, management changes, and a potential bankruptcy filing.

In the oil and gas space, Hornbeck Offshore Services Inc.’s issues were mixed after the company announced an exchange offer for its 5 7/8% senior notes due 2020.

While oil futures continued to rise, California Resources Corp.’s paper was mixed while QEP Resources, Inc.’s and Ensco plc’s notes were better.

Meanwhile, in the health care space, Community Health Systems, Inc.’s issues were positive after an arbitrator settled a dispute between the company and Quorum Health Corp, a 2015 spinoff.

Elsewhere in the space, Mallinckrodt plc’s paper was also gaining.

Retailer J.C. Penney Co., Inc.’s notes were higher as the market anticipated holiday sales numbers after the close.

Sector peer L Brands, Inc.’s issues were also climbing.

PG&E tanks

Utilities company PG&E’s notes shifted lower, traders said.

The 6.05% notes due 2034 dropped 5 points to close at 87 bid. The 3.3% notes due 2027 lost 2¼ points to close at 79¼ bid. The 3½% notes due 2020 shed 2½ points to close at 89¾ bid.

The three tranches saw a combined 578 million bonds on the tape in the Tuesday session.

The San Francisco-based electric utilities name has been under scrutiny in the last few trading days after the company warned investors that it could suffer a large accounting charge due to potential liabilities incurred in recent California wildfires.

“Nobody seems to know for certain what’s going to happen to them,” a trader said. “The state will probably bail them out but it’ll be a horrible mess to clean up if they go that way. Either way, they took over the market today.”

Early Tuesday, S&P Global Ratings lowered the issuer credit ratings and short-term ratings for the company and their subsidiary, Pacific Gas & Electric Co.

Liability concerns were first raised in November, putting its structure under pressure.

Hornbeck mixed

In the oil and gas sector, Hornbeck’s issues were mixed, traders said.

The 5 7/8% notes due 2020 added 3½ points to close at 63 bid. The 5% notes due 2021 fell 2¼ points to close at 52¾ bid.

After Monday’s market close, the Covington, La.-based offshore transportation company announced an exchange offer for up to $200 million of the 5 7/8% senior notes for new second lien term loans due 2025.

Concurrent to the offering, the company is also seeking some amendments on the senior notes.

Oil still rising

As oil futures continued to move upward, popular distressed oil tranches were largely positive.

Los Angeles-based independent oil and gas producer California Resources’ paper ended the session mixed.

The 6% paper due 2024 picked up 1½ points to close at 68½ bid. The 8% paper due 2022, while moving as high as 80¾ bid during the day, settled back down to Monday’s level of 78 bid.

Denver-based oil and gas driller QEP’s notes continued to trend up.

The 5 5/8% notes due 2026 gained ½ point to close at 92¾ bid. The 5¼% notes due 2023 also rose ½ point to close at 95 bid.

The company received increased attention on Monday after news broke that it had received an acquisition offer from Elliot Management for $2.07 billion in cash, which has not been accepted yet.

London-based contract driller Ensco’s issues were also on a positive swing.

The 7¾% notes due 2026 edged up ¼ point to close at 81¼ bid. The 7.2% notes due 2027 added 2¼ points to close at 80 bid.

The company’s proposed $2.38 billion acquisition of Rowan Cos. had doubts cast on it Monday after a large Rowan shareholder announced that it would vote against the merger.

West Texas Intermediate crude oil futures for February delivery ended the Tuesday session up $1.26 to $49.78 per barrel.

North Sea Brent crude futures closed at $58.72 after gaining $1.39.

“Oil’s been on a tear and we’ll probably be in the low 50’s at the end of the week,” a trader said.

Community Health up

Meanwhile, Community Health’s paper moved upward, traders said.

The 6 7/8% paper due 2022 rose 1½ points to close at 51 bid. The 7 1/8% paper due 2020 added 1 point to close at 85½ bid.

Last Thursday, after a dispute with spinoff company Quorum, an arbitration panel ruled that Quorum would not have to make $9.3 million in contested payments regarding services provided by CHS after the spinoff.

Separately, the panel decided that Quorum would have to pay the Franklin, Tenn-based hospital operator $1.5 million tied to a computer and data processing transition agreement.

Quorum was spun off of Community Health in 2016.

Elsewhere in the health care space, Staines-Upon-Thames, U.K.-based drug maker Mallinckrodt’s 4¾% notes due 2023 gained ½ point to close at 71 bid.

J.C. Penney rises

In retail, J.C. Penney’s issues were higher, market sources said.

The 8 5/8% notes due 2025 jumped up 4 points to close at 60 bid.

After the close on Tuesday, the Plano, Texas-based department store chain announced a 3½% drop in holiday sales. The company will move forward with planned store closures and evaluate further store closures.

“Good or bad, there’s a lot of buzz surrounding J.C Penney today,” a trader said before the news broke.

Columbus, Ohio-based retail sector peer L Brands’ paper traded up.

The 5¼% paper due 2028 rose ¾ point to close at 88 bid. The 6¾% paper due 2036 gained 1¼ points to close at 85¾ bid.

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