Mallinckrodt debt dips on InfaCare purchase; Endo, Valeant earnings on tap; Fannie Mae trades up

By Stephanie N. Rotondo

Seattle, Aug. 7 – The distressed debt market was once again largely passed over for the high-yield space on Monday, as another flurry of new issues hit the tape.

There was, however, some activity in the distressed pharmaceutical arena.

Mallinckrodt plc’s 4¾% notes due 2023 were a touch weaker after the company said it was acquiring InfaCare Pharmaceutical Corp. in a deal estimated to be worth $425 million.

A trader called the notes down a quarter-point at 88¾.

The acquisition will put a developing jaundice drug for newborns into Mallinckrodt’s hands. The drug was put on the Food and Drug Administration’s fast track back in December, given that there are few drugs currently in the market that meet such needs.

Meanwhile, generic pharmaceutical company Endo International plc saw its debt trade unchanged to lower ahead of its earnings release on Tuesday.

A trader deemed the 6% notes due 2023 steady at 84, though the 6% notes due 2025 dipped a quarter-point to 81¾.

Another pharmaceutical company with earnings coming on Tuesday, Valeant Pharmaceuticals International Inc.’s 5 7/8% notes due 2023 were pegged at 85 3/8, a gain of half a point.

Last quarter, the company – which has struggled amid price fixing allegations – surprised the market by beating expectations. For the second quarter, analysts are expecting adjusted earnings per share of 97 cents on revenue of $2.24 billion.

As for the distressed preferred stock market, Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were trading active, firming 16 cents, or 2.33%, to $7.02.

Though the 8.25% noncumulative preferreds (OTCBB: FNMAT) were not as active, they were also stronger, adding 18 cents, or 2.73%, to close at $6.78.

A market source noted that the gains came as the Federal Housing Finance Agency released the agencies’ stress test results.

“No surprise, they did not pass,” the source said. “After all, they have little capital.”

But the source added that the GSE-linked preferreds were up about 2.5% across the board.

“I think this is more ‘pie-in-the-sky’ thinking,” he said.

As it stands right now, Fannie and her sector peer Freddie Mac have a combined capital buffer of $600 million – a figure that, under the current conservatorship terms, will be reduced to zero in 2018. Though both agencies have been profitable in the last couple of years, the so-called “net worth sweep” requires that a bulk of the GSEs’ profits be put back to the Treasury by way of a dividend payment.

In the wake of the tests, however, those who have been pushing for the GSEs’ ability to build up more capital – mostly investors, although there are a few political allies as well – may use the data to back up their arguments.

Back in May, the FHFA head, Mel Watt, even noted to Congress that the current capital plan is not sustainable and indicated he may be open to building up a larger capital cushion.

But so far, housing finance reform has stalled and either side – those fighting for Fannie and Freddie to recapitalize and those looking to unwind both firms – have been moved to compromise only so far.

© 2015 Prospect News.
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