Valeant improves as guidance affirmed; Walter Investments pops on sales; Guitar Center debt wanes

By Stephanie N. Rotondo

Seattle, Aug. 9 – Fresh headlines continued to drive distressed credits on Tuesday.

Perhaps most notable was Valeant Pharmaceuticals International Inc., which in addition to announcing second-quarter results said that it would reorganize itself.

The Canadian drugmaker – which has been plagued by accounting issues and governmental and regulatory investigations – also reaffirmed its yearly guidance, giving investors hope that the company could reach its targets.

Bonds gained 4 to 5 points in response to the news.

Meanwhile, a series of strategic transactions were helping push Walter Investment Management Corp.’s debt into higher territory. A sale of mortgage servicing rights and other assets gave investors something else to focus on aside from the company’s weak earnings report.

Among the day’s losers, Guitar Center Inc.’s 6½% notes due 2019 were under pressure during the session.

It wasn’t clear what caused the decline, though the Los Angeles-based musical instrument retailer did announce that Darrell Webb, chief executive officer, was planning to retire.

Ron Japinga, currently president of the company, will take over the role in the “coming days,” the company said.

“It might be that there is a little uneasiness at the top,” a trader speculated on possible reasons why the debt fell in trading.

He pegged the notes at 87¾, off over 2 points.

Another trader said the debt was down 2 to 3 points, trading with an 87 handle.

Also in the retail world, rue21 Inc.’s 9% notes due 2021 were seen rising 3 points to 37½.

Valeant ‘markedly’ better

Valeant Pharmaceuticals’ bonds got a boost on Tuesday as the company affirmed its yearly guidance and said that it would restructure itself.

The announcements came in tandem with the company’s latest earnings release.

“The bonds were markedly higher,” a trader said, seeing the 6 1/8% notes due 2025 rising 4½ points to 87.

Both the 5 7/8% notes due 2023 and the 5½% notes due 2023 were 4 points better, at 86¾ and 86, respectively.

Another trader saw the 6 1/8% notes pushing up to “around 87” from levels around 82 previously.

After a series of cuts, Valeant maintained its yearly guidance for earnings between $6.60 to $7.00 per share on revenue of $9.9 billion to $10.1 billion.

Additionally, the company said it was going in a “new strategic direction,” reorganizing into three main units. Also as part of the restructuring effort, the company is considering selling off noncore assets.

Such sales could generate as much as $8 billion. Those proceeds, along with cash flows, will be used to reduce the company’s debt burden by over $5 billion over the next year and a half.

As for the quarterly results, Valeant reported a loss of $302.3 million, or 88 cents per share.

That compared to a loss of $53 million, or 15 cents per share, the year before.

On an adjusted basis, earnings per share was $1.40.

Revenue declined 11% to $2.42 billion.

Analysts polled by Thomson Reuters had forecast EPS of $1.48 on revenue of $2.46 billion.

Walter sales a positive

Walter Investment Management’s debt was trending upward Tuesday as the company announced a series of strategic transactions on Tuesday.

News of the asset sales appeared to outweigh earnings that were less-than-stellar.

A trader said there was a “fair amount” of activity in the 7 7/8% notes due 2021, which he saw ending around 53. He noted that the paper was “initially higher,” trading up to 56 before it settled back in.

Still, he said the name was “up a good bit,” from levels in the mid-40s previously.

Another trader called the 7 7/8% notes “very active,” seeing the bonds rise 7 points to 53¼.

The convertible bonds were also on the radar on Tuesday.

A trader saw the 4.5% convertible notes bid at 42 in size early in the day, though only small pieces had been trading.

He said the smaller-sized trades were occurring around 34.

“Walter hasn’t made very good investments, that’s why they are trading in the 40s instead of the 90s,” the trader said.

Another market source placed the issue around 42, which was called up about 7 points from last week.

At another desk, a trader also saw the paper ending at 42, which was up from the mid-30s previously.

The stock also got a boost, improving 43 cents, or 18.86%, to $2.71 – still well down from the $19.40 per share price seen a year ago.

The Tampa-based loan servicing company announced early in the day that it was selling off mortgage servicing rights, as well as nearly all of the assets of Walter Capital Opportunity and its subsidiaries to New Residential Investment.

Combined, the transactions are expected to bring in $514 million.

That news came on the heels of the company’s second-quarter earnings release, which missed analysts’ expectations.

For the quarter, Walter reported a loss of $232.4 million, or $6.49 per share.

On an adjusted basis, earnings came to 7 cents per share.

Revenue was $187.5 million.

Analysts polled by Zacks Investment Research had expected adjusted EPS of 16 cents on revenue of $255.8 million.

Chemours adds on earnings

A trader said Chemours Co.’s debt was “up a couple points post-earnings.”

He pegged the 7% notes due 202 at 91½. He added that the 6 5/8% notes due 2023 were “probably around 93-ish,” as the issue trades higher than the 7s.

For the second-quarter, the Wilmington-based chemical manufacturer posted a net loss of $18 million, or 10 cents per share.

The loss is the third the company has reported in the last year.

On an adjusted basis, earnings came to $49 million, or 27 cents per share – a hefty gain from adjusted earnings of $17 million, or 9 cents per share, the year before.

Net sales slid over 8% to $1.38 billion.

Chemours was saddled with about $4 billion in debt when it was spun-off from DuPont in 2015. In an effort to deal with that debt load, the company has been cutting costs and hopes to trim $350 million in expenses by 2017.

About $100 million in recurring costs was slashed in the most recent quarter, the company said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.