China Evergrande dives; Peabody rises; Washington Prime flat; Endo slips; Mallinckrodt up

By Cristal Cody

Tupelo, Miss., July 30 – China Evergrande Group’s bonds continued to sink on Friday following the company’s downgrade at the start of the week by S&P Global Ratings.

China Evergrande’s 10% senior notes due 2023 (B3/CCC+) headed out down more than 14 points from the prior week.

“China markets were again the worst performers this week with A shares off by 6% and credit distress ratio rising to 16%,” according to a BofA Securities, Inc. research note on Friday.

Volatility eased this week from the prior week but ticked higher on Friday, a source said.

The Chicago Board Options Exchange’s CBOE Volatility index rose 3.05% to 18.24.

Market tone softened over the day with stocks and ETFs edging lower.

Oil prices were flat to slightly better during the session after settling more than $1 higher on Thursday.

In other distressed secondary trading, Peabody Energy Corp.’s 6 3/8% senior secured notes due 2025 (Caa1/D) added ½ point to head out about 6 points better on the week.

Washington Prime Group, LP’s 6.45% notes due 2024 (C/D/CC) traded mostly flat on Friday but remain more than 5 points weaker on the month as the company continues its Chapter 11 bankruptcy process.

Fitch Ratings noted in a report on Friday that a group of equity holders in operating partnership Washington Prime Group Inc. “is seeking to push out the current Chapter 11 case timeline by around six weeks, claiming it needs more time to evaluate the valuation and it believes the company may be worth more than the current plan implies.”

In the distressed pharmaceuticals space, bonds from Endo International plc pulled back on Friday after the paper soared in the previous week following the announcement of a $35 million opioid-related settlement.

Mallinckrodt LLC’s notes were ending the week ½ point better.

China Evergrande drops

China Evergrande’s 10% senior notes due 2023 (B3/CCC+) dropped 4½ points on Friday to 43½ bid, down more than 14 points from the prior week, a market source said.

The notes fell 3 5/8 points on Thursday.

On Monday, S&P said it downgraded China Evergrande, Hengda Real Estate Group Co. Ltd. and Tianji Holding Ltd.

The agency also said it lowered China Evergrande’s bond ratings based on a weakening in its funding access and noted the company has more than $6 billion of offshore maturities due in 2022.

Peabody notes up

Peabody Energy’s 6 3/8% senior secured notes due 2025 (Caa1/D) traded up ½ point to the 79½ bid area on Friday, a source said.

The notes added 2½ points on Thursday and were ending the week about 6 points better.

Peabody was downgraded by S&P Global Ratings to SD on July 12 following a tender offer the agency said it views as tantamount to default.

The St. Louis-based coal producer’s tender offer to purchase up to $13.28 million of its 8½% notes due 2024 at a price equal to 73.84 expires on Aug. 6.

Distressed index improves

Oil prices were flat to slightly better on Friday after settling more than $1 higher on Thursday.

North Sea Brent crude oil futures for September deliveries settled unchanged at $76.05 a barrel after gaining $1.31 in the prior session.

West Texas Intermediate crude oil benchmark futures for September deliveries rose 33 cents to settle at $73.95 a barrel following a $1.23 bump on Thursday.

Market tone softened with stocks and ETFs edging lower.

The iShares iBoxx High Yield Corporate Bond ETF was down 12 cents for the day at $87.84.

Distressed returns improved over the prior two sessions.

The S&P U.S. High Yield Corporate Distressed Bond index finished Thursday up 0.72%, compared to 0.18% on Wednesday, minus 0.57% on Tuesday and minus 0.05% on Monday.

Month-to-date total returns narrowed to minus 2.97% on Thursday from minus 3.66% on Wednesday, minus 3.83% on Tuesday and minus 3.28% on Monday.

Distressed year-to-date total returns rose to 24.08% on Thursday from 23.19% Wednesday, 22.97% on Tuesday and 23.67% on Monday.

Market focus is expected to continue on a heavy schedule of second-quarter reports due in the week ahead, including from Frontier Communications Parent Inc., which exited Chapter 11 bankruptcy in April.

Washington Prime steady

Washington Prime Group’s 6.45% notes due 2024 (C/D/CC) were mostly unchanged during the session at 61¼ bid in light volume, a source said.

The issue is down 5¾ points since the beginning of the month.

Washington Prime filed for bankruptcy on June 13 following a forbearance period after the operating partnership missed a $23.2 million interest payment on the bonds that was due Feb. 15.

Washington Prime had approximately $2.8 billion of secured debt and $1.1 billion of unsecured debt, including $721 million of the 6.45% notes, that was outstanding as of June 13, according to Fitch.

The Columbus, Ohio-based shopping center real estate investment trust has received conditional approval of the disclosure statement for its Chapter 11 plan of reorganization from the U.S. Bankruptcy Court for the Southern District of Texas.

Endo notes dip

Endo Finance LLC’s 6% senior notes due 2028 (Caa2/CCC+) fell 3/8 point to 67¾ bid in strong trading activity on Friday, a market source said.

The issue softened about 2¼ points over the week after finishing the prior week up 10 points following Endo’s $35 million announced opioid-related settlement with Tennessee plaintiffs.

The Dublin-based pharmaceuticals maker’s settlement announcement on June 22 came a day after states reported 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.

Mallinckrodt improves

Mallinckrodt’s 5¾% notes due 2022 were quoted on Friday at 66 bid, ½ point better on the week, a source said.

The bankrupt pharmaceuticals maker also faces legal action related to opioids with a lawsuit from New York’s attorney general that is moving through U.S. Bankruptcy Court.

Mallinckrodt 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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