Fresh Market rebound continues, Frontier better, PetSmart falters; bankrupt Cobalt’s convertibles zoom

By Paul Deckelman

New York, Dec. 20 – In a mostly quiet session in distressed debt and the bonds and shares of other underperforming companies and sectors on Wednesday, mirroring an overall lack of real activity in the broader high-yield bond market as activity starts to dwindle as the end of the year nears, supermarket operator Fresh Market Inc.’s bonds were both the busiest name and the best performing credit; they firmed smartly for a second straight session on, continuing Tuesday’s rebound from Monday’s downturn.

But PetSmart Inc.’s recently beleaguered bonds reverted to form on Wednesday, snapping a two-session rebound in the specialty retailer’s paper.

Wireline telecommunications company Frontier Communications Corp.’s paper, though, was seen better all around, an improvement from Tuesday’s slide.

In the convertibles market, bankrupt international oil and natural gas exploration and production company Cobalt International Energy’s 2019 and 2024 converts jumped after the company reached a settlement on its offshore holdings near the African nation of Angola.

Fresh Market firms again

A trader said that Fresh Market, Inc.’s 9¾% notes due 2023 jumped by some 4½ points on the session Wednesday, surging in busy dealings for a second day in a row.

He saw the bonds going home north of 63¾ bid, with a market-leading volume of more than $30 million traded.

A second market participant said that the bonds were “smartly rebounding – the top trader in an otherwise lackluster session.”

On Tuesday, the bonds had improved by some 4¼ points, on more than $23 million of turnover.

That two-day rebound followed Monday’s loss of nearly 1 point on the day, with over $9 million having traded.

The traders did not see any fresh news out about the Greensboro, N.C.-based upscale supermarket operator to explain the renewed downside activity in its paper on Monday or the bounce on Tuesday.

One of them did note that the bonds had “gotten a hit a while back” after retailing giant Amazon.com bought Fresh Market’s key competitor, Whole Foods Market, earlier this year for more than $13 billion and then proceeded to slash prices in an effort to win market share from its rival.

PetSmart rebound over

PetSmart, Inc.’s notes were seen lower on Wednesday, after two straight sessions before that in which they had shown strength, rebounding after getting clobbered for most of last week.

“They ran out of steam,” a trader said, seeing the Phoenix-based pet food and other pet supplies retailer’s senior secured 5 7/8% notes due 2025 down by 1½ points Wednesday, to 77 bid, with over $13 million traded.

“That didn’t last very long, did it?” a second trader asked rhetorically.

He also saw its unsecured 7 1/8% notes due 2023 and 8 7/8% notes due 2025 having eased back into the upper 50s, after having firmed to above 60 bid in the previous two sessions.

Before their firm rebound earlier in the week, that paper had been in retreat virtually all of last week, on investor worries about weakening EBITDA and fears that company management has the right, under its loose bond indentures, to choose to spin off its valuable Chewy online sales unit to benefit its equity sponsors alone, while the overall company would remain stuck paying off the $2 billion of junk bonds it sold to finance the buy of that online business earlier this year.

Frontier firms up

While PetSmart was once again getting punished, the traders said that Stamford, Conn.,-based wireline telecom operator Frontier Communications bonds were on the rebound Wednesday, after having been lower across the board on Tuesday.

One saw the company’s widely traded 11% notes due 2025 about ¼ point better on the day, at 74¼ bid, while its 9% bonds due 2031 – an issue not usually seen around quite as much as the 11s – surging 1 3/8 points to close at 66¾ bid.

Around $8 or $9 million of each issue changed hands.

Crazy for Cobalt

On a slow day in the convertibles market, which saw only $255 million in trades total by late afternoon, there was a frenzy of activity surrounding Cobalt International Energy’s 3.125% notes due 2024 and its 2.625% converts due 2019. The activity sent both issues soaring.

Both the 3.125% and 2.625% notes from the Houston-based petroleum exploration and production company had been languishing in the 11-to-12 bid range in the run-up to Wednesday’s session.

“There was a lot of active trading. People got a little crazy and were buying them for 30,” a market source said. Both notes simmered later in the afternoon to solidify around 25, the source said.

The embattled company filed for bankruptcy on Dec. 14 after missing coupon payments on both notes.

Cobalt announced Wednesday that it had reached a settlement with Sonangol, which oversees petroleum and natural gas production in Angola, over disputed property. In exchange for Cobalt’s transferring of interest in the property off the coast of Angola, Sonangol will pay Cobalt $500 million.

The settlement was good news for holders of the notes, a market source said. “The prime property is the Gulf of Mexico,” the source said. “People are waiting on that now.”

The property off the coast of Angola and the Gulf of Mexico are Cobalt’s two main assets. When the Gulf of Mexico property is settled, holders of Cobalt’s debt will have a better understanding of what they will get from the bankruptcy.

Cobalt’s stock was delisted from the NYSE after the market close Dec. 13.

Abigail W. Adams contributed to this review

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