Community Health ‘tapped’ on healthcare saga; Mallinckrodt down on FTC settlement; retailers struggle

By Colin Hanner

Chicago, Jan. 18 – The downward movement of a pair of distressed companies in the healthcare and pharmaceutical sectors were some of the biggest decliners on Wednesday’s session on an otherwise busy trading day.

“[Community Health Systems] is really getting tapped here at the end of day,” a trader said at the end of the market close, noting that several of its distressed notes were down several points on the heels of the continuing Affordable Care Act repeal saga in Washington.

Thames, England-based Mallinckrodt Pharmaceuticals joined the decliners list on the session on more concrete news that it had settled with the Federal Trade Commission on claims that the company raised the price of one of its drugs on the grounds of a monopoly.

A trader said distressed bonds were down several points.

Retailers continued to fall in line with the struggles of brick-and-mortar stores, including Neiman Marcus Group, Inc. and Toys “R” Us, Inc., which both saw several modest drops on the day.

Technology company Avaya Inc. saw one high-volume trade that brought down one of its securities to lows not seen this year on the back of uneasiness with the future in the company.

Hospitals in healthcare hiatus

Though the possible repeal and replacement of the Affordable Care Act will ultimately have to wait until president-elect Donald Trump takes office later this week, the continued debate about what healthcare will look like– and who it will cover – picked up steam in a confirmation hearing of Rep. Tom Price (R-Georgia) for the Department of Health Services.

"There has been a lot of talk about individuals losing health coverage and that is not our goal nor our desire nor our plan," Price said in the confirmation hearing Wednesday.

The divisiveness and contention of the issue seemed to influence Community Health Systems’ securities on the session, a trader said.

For instance, the 6 7/8% notes due 2022 were down 3½ points to 70¾, the trader said, adding that following the company’s biggest decliner were the 7 1/8% notes due 2020, which were down “2 [points] and change” to 81.

Rounding out the losers were the 8% notes due 2019, which were down 1½ points to 87¾, and the 5 1/8% notes due 2021, down 1 point to 94, a market source said.

The trader noted that Community Health’s senior notes – the 5 1/8% notes due 2018 and 2021, respectively – were unchanged on the session.

Community Health spinoff, Quorum Health Corp., was down ¼ point in its 11 5/8% notes due 2023, which finished with a 90¼ handle.

Drug prices comes to forefront

One of the few instances in which president-elect Trump has appeared to take a bipartisan stance thus far is against pharmaceutical companies’ seemingly systematic use of price-fixing drugs, which have become the subject of federal investigations in recent times.

On Wednesday, Mallinckrodt Pharmaceuticals settled with the FTC over claims that the company artificially increased prices of one of its drugs by purchasing a rival drug, thereby creating a monopoly for the treatment.

Mallinckrodt will pay $100 million to settle the charges.

Trading was halted after an 8% drop in its equities on the afternoon, and several of its distressed securities bore the brunt of the news.

The 5½% notes due 2025 were down 3 points to 83, a trader said, with one of its higher issues – the 4 7/8% notes due 2020 – falling by the same margin to a 97 handle.

The 5¾% notes due 2022 were down 1½ points to 92.

Other pharmaceutical companies, Concordia International Corp. and Valeant Pharmaceutical International, Inc., were mixed on the day, but trended downward.

Concordia’s 7% notes due 2023 were down ½ point to 38½, a market source said.

Two of Valeant’s bonds – the 5 7/8% notes due 2021 and the 7½% notes due 2021 – were virtually unchanged at 76 and 87¾, respectively.

And Valeant’s 5 7/8% notes due 2023 were down 1/8 point to 76, a trader said.

Traditional retailers struggling

With the holiday season a thing of 2016, disappointing results from traditional retailers are not trailing too far behind, trader said.

Toy retailer Toys “R” Us’ 12% notes due 2021 were down 1½ points to 91½, a trader said.

And Neiman Marcus Group, Inc. – going as far as to recently remove its initial price offering submittal – was down ¼ point in its 8¾% notes due 2021, which finished at 63¾.

Avaya second-liens down

There was a notable difference in the first- and second-lien securities for Avaya, Inc. on Wednesday, a trader said, noting that the first-liens were up, while the 10½% notes due 2021 were down “almost 5 points” to 16.

A trader said the decrease in the 10½% notes could be based on speculation that the debtor-in-possession financing is much larger than thought and could have some negative implications for bonds below the first-lien notes.

Intelsat mixed

Intelsat Jackson Holdings SA’s 7¼% notes due 2019 were down 1½ points to 82, a market source said. A trader said the recent lower trend for the notes doesn’t seem to be attached to any specific driver but could be attributable to people selling the notes in front of earnings.

On the other hand, Intelsat Connect Finance SA’s 12½% notes due 2022 were up ¾ point to 60¾, a trader said.

Oil falls, so does E&P

And, as oil prices fell off gains seen earlier in the session, California Resources Corp.’s 8% notes due 2022 were down 1 point to 88¼.

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