Peabody Energy misses coupon payments, warns about the future; Valeant remains active, trades mixed

By Stephanie N. Rotondo

Seattle, March 16 – Skipped coupon payments remained a driver of distressed bonds on Wednesday.

Peabody Energy Corp. announced that it was electing to use its 30-day grace period on $71.1 million in interest payments due on its 6½% notes due 2020 and 10% second-lien notes due 2022.

The St. Louis-based coal producer also said that its ability to continue as a going concern was in question, due in large part to the depressed prices and demand for coal.

But given that the bonds started trading flat – or without accrued interest – they did get a little boost on the day.

A trader saw the 6% notes due 2018 – an issue the company has been trying to launch an exchange offer for – jumping 3½ points to 6 7/8. The 6¼% notes due 2021 meantime edged up a quarter-point to 6½.

“Those bonds were pretty active,” another trader said. “Trading around 6 on all the unsecureds. The ones that popped in price were because they went flat.”

Meanwhile, Linn Energy LLC’s 7¾% notes due 2021 – an issue that had a $30 million coupon come due on Tuesday – inched up another half a point to 11 1/8, according to a trader.

The trader also saw the 8 5/8% notes due 2020 holding steady at 9 7/8.

On Tuesday, the Houston-based oil and gas producer said that along with the skipped payment on the 7¾% notes, it also skipped a $12 million payment on its 6½% notes due 2021 and another $18 million payment on Berry Petroleum Co. Inc.’s 6 3/8% senior notes due 2022.

Energy XXI Ltd. was another one that missed an interest payment on Tuesday.

Payments were due on the 11% second-lien notes due 2020 and the 6 7/8% notes.

In midweek trading, a trader saw the 11% notes at 12¾, up a quarter-point.

Bucking the missed payment trend, SandRidge Energy Inc. said in a regulatory filing that it made a $28.4 million payment on its 7½% notes due 2021. Additionally, the company also paid out about $21.7 million in interest on its 7½% notes due 2023 and its 7½% convertible notes due 2023. The Oklahoma City-based oil and gas company had previously delayed that payment on Feb. 16.

“So we’ll see how the market reacts, but I haven’t seen anything yet,” a trader said of SandRidge.

Valeant dominates

Trading in Valeant Pharmaceuticals International Inc.’s 6 1/8% notes due 2025 was “dwarfing everything else,” a trader said Wednesday.

He said about $112 million of the issue changed hands, with the bonds ticking up over half a point to 77.

“So a little bit of a rebound,” he said.

The rest of the company’s bonds, however, remained under pressure.

The trader said the 6¾% notes due 2018 fell a point to 90½, while the 5 3/8% notes due 2020 dipped a quarter-point to 81¾. The 6 3/8% notes due 2020 crashed “almost 5 points” to 82, he said.

The trader also pegged the 5 7/8% notes due 2023 at 77¼, which was unchanged. He added that there were “at least 40 [round lot] trades” in the paper.

At another desk, a trader said the 6 1/8% notes were the “most active” of the bonds, trading up “about a point on the day” to 77. However, he noted that the debt had traded as low as 74 during the session.

The term loans meantime regained some of the losses they experienced during the previous session as the secondary market in general was a little better, sources remarked.

The term loan E was quoted at 93½ bid, 94 offered, up from 92 bid, 92¾ offered, the term loan F was quoted at 93½ bid, 94 offered, up from 92¼ bid, 93 offered, and the C and D term loans were quoted at 94½ bid, 95 offered, up from 92½ bid, 93½ offered, one trader said.

At the beginning of this week, the term loan E was seen at 94½ bid, 95 offered, the term loan F was 94 5/8 bid, 95 1/8 offered, and the term loans C and D were 95 bid, 95¾ offered.

All of the debt had dropped on Tuesday after the company released preliminary unaudited fourth quarter numbers and cut guidance for the first quarter of 2016 and full-year 2016.

Due to its delayed 10-K filing, Valeant is now in danger of triggering a default on its bonds. That in turn could trigger a cross-default of its bank credit agreements.

The company had warned that the filing could come later than necessary, as it was investigating its accounting practices. That came on the heels of an investigation from the Securities and Exchange Commission in regards to its relationship with pharmacy Philidor.

The company now has 60 days to cure the default.

In a report issued Wednesday morning, Gimme Credit LLC analyst Vicki Bryan said the results –as well as the conference call that followed – “were a fiasco.

“Not only were the numbers and revised outlook dramatically lower versus market expectations, during the call management actually reduced 2016 EBITDA guidance it had just provided for the odd ‘next four quarters’ to $6 billion from $6.2-$6.6 billion – a drop of 3% to 9% – when it was confronted by an analyst who noticed the lower number in the slide presentation versus the outlook noted in the press release.”

Management then tried to pass off the lower figure as a typo, Bryan wrote, but also said that management and the board of directors continued to have “a lot of debate” about guidance.

“So it sounded to us like even the company has low confidence in the quality of its forecast,” Bryan wrote.

Valeant is a Laval, Quebec-based specialty pharmaceutical company.

Sara Rosenberg contributed to this article.

© 2015 Prospect News.
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