Energy names, Valeant gain – but Mallinckrodt, Community Health and Sprint get hammered

By Paul Deckelman

New York, Nov 7 – Traders in distressed debt and bonds of underperforming companies and sectors saw an upturn in some formerly beleaguered areas.

They said that energy names such as California Resources Corp., Denbury Resources Inc. and QEP’s existing bonds all firmed smartly, riding their upside momentum of the past several sessions – even though world crude oil prices declined after three straight advances.

Valeant Pharmaceuticals International Inc.’s bonds also moved up, as the Canadian drugmaker reported third-quarter earnings and reported continued progress in cutting its massive debt load using asset-sale proceeds and generated cash flow.

But other healthcare names were seen struggling.

Fellow drugmaker Mallinckrodt plc’s bonds were on the slide after the company reported disappointing quarterly earnings.

Hospital operator Community Health Systems Inc.’s bonds remained sickly.

However, sector peer Tenet Healthcare Corp.’s bonds rebounded from Monday’s downturn.

Sprint Corp. continued to fall following the end of its efforts to merge with competitor T-Mobile.

In the convertibles market, Priceline Group Inc.’s paper took a tumble Tuesday after the company lowered its future guidance in its 10-Q filing with the Securities and Exchange Commission.

Energy issues improve

One of the areas investors were focused on Tuesday was the energy space, which was broadly higher.

A trader saw California Resources’ 8% notes due 2022 “going like gangbusters today,” seeing the bonds push up to around 73 5/8, while a second market source called the bonds better than 2-point gainers on the day, finishing at 74¾ bid.

And a third desk had the Los Angeles-based E&P company’s paper moving all the way up to 75, calling it better than a 1 ¼ point rise on the session.

Other energy credits were likewise trading strongly, such as Plano, Texas-based Denbury Resources’ 6 3/8% notes due 2021, quoted up some 2½ points at 77½ bid.

New-issuer QEP Resources’ existing 5¼% notes due 2023 were seen having finished at 101¼ bid, up by 1¾ points on the day.

Traders said that the recently strong energy names continued to firm even though crude oil prices – whose parallel recent strengthening was the driver for the bonds’ upside momentum – finally weakened on Tuesday after having posted big gains of more than $1 per barrel both on Friday and again on Monday.

Tuesday’s trading was another matter, with December-delivery West Texas Intermediate crude, the benchmark U.S. oil grade, finishing down 15 cents per barrel in New York Mercantile Exchange trading, at $57.20.

Key international grade North Sea Brent for January delivery fell by 58 cents per barrel in Tuesday’s London futures trading, settling at $63.69 per barrel.

Valeant gains on numbers

Elsewhere, Valeant Pharmaceuticals’ bonds were better after the Laval, Que.-based drug manufacturer reported unexpectedly better third-quarter numbers, helped by strength in its Bausch & Lomb optical care products division.

Its bonds “were up big,” a trader said, seeing the company’s 6 1/8% notes due2025 up 2 points on the day at 85¼ bid, while its 5 7/8% notes due 2023 and 5½% notes due 2023 were also up by a deuce on the day at 86 bid and 85 3/8 bid, respectively.

“Their whole [capital] structure was up 1½ to 2½ points or so,” a trader at another desk said.

For the third quarter ended Sept. 30, Valeant reported net income of $1.3 billion, or $3.69 per share, versus a loss of $1.22 billion, or $3.49 per share, a year earlier.

On the company’s conference call with analysts, its executives noted that Valeant had cut its huge debt burden by more than $6 billion since the 2016 first quarter, and had fulfilled its immediate target of eliminating $5 billion of debt through the use of asset-sale proceeds and cash flow it generates ahead of its February 2018 target date.

Mallinckrodt gets mauled

But while Valeant was on the rise, a trader said that fellow drug-maker Mallinckrodt plc “was going in the other direction,” after the Britain-based company reported its third-quarter results, including a 10.5% plunge in new sales to $739.9 million, well below Wall Street’s expectations of more than $800 million.

Its 4¾% notes due 2023 nosedived by 5 ¼ points on the day to end at 79 3/8 bid.

Mallinckrodt’s 5 5/8% notes due 2023 dropped by 5 ¾ points, to 88¼ bid.

Community Health crushed

Elsewhere in health-related credits, a trader said that Franklin, Tenn.-based hospital operator Community Health Systems bonds ‘continue to get hit every day.

“They’ve really softened up.”

He saw the company’s 7 1/8% notes due 2020 down 3 points on the day at 78½ bid, while its 6 7/8% notes due 2022 retreated by 2½ points, to 67 bid.

But he did see Dallas-based sector peer Tenet Healthcare Corp.’s bonds “coming back today [Tuesday], after they got whacked on Monday.”

He said Tenet’s 6¾% notes due 2023 having fallen more than 2 points on Monday, but then having regained that ground Tuesday to end about unchanged at 92½ bid.

Sprint slide continues

A trader said that Sprint Corp.’s bonds “continued their decline” seen on Monday in the wake of the news that the Overland Park, Kan.-based wireless carrier and Bellevue, Wash.-based sector peer T-Mobile will not be merging, following the final breakdown of negotiations between their respective corporate parents.

Its 7 5/8% notes due 2025 lost 2 points on the session to end at 105½ bid.

Its 7 7/8% notes due 2023 were 1 point lower at 107 7/8 bid, while its 6% paper due 2022 were 1 3/8 points lower at 101 5/8.

Priceline converts tumble

In the convertibles market on Tuesday, Priceline Group Inc.’s outstanding converts took a tumble after the company lowered its future guidance in its 10-Q filing with the Securities and Exchange Commission.

Priceline’s 0.35% convertibles due 2020 closed the day at 132.05, about 16 points lower than the previous closing price of 148. Prices ranged from 138 to 129 throughout the session.

Its 1% convertible due March 15, 2018 fell almost 25 points, closing the day at 174.11, according to Trace data. The company’s 0.9% convertible fell about 8 points, closing the day at 110.98.

Priceline stock also plummeted 13.52% on Tuesday, closing the day at $1,645.72. While the company announced a 21.9% increase in gross profits in its 10-Q, it projected a decrease in previously stated expectations for future growth.

The lowered future guidance is largely due to the impact economic uncertainty in the European Union and China is expected to have on travel demand and also from heavy competition in the industry, according to the filing.

Abigail W. Adams contributed to this review

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