PetSmart pummeled on Chewy spinoff fears; CenturyLink climbs as Pennsylvania deal boosts shares

By Paul Deckelman

New York, Dec. 11 – PetSmart, Inc.’s several issues of bonds were the big losers on Monday, according to traders in distressed debt and in the bonds of otherwise underperforming companies and industry sectors.

They cited news reports indicating that the embattled retailer could spin off the company’s potentially lucrative Chewy online pet supplies business in order to pay a dividend to its private-equity sponsors.

Elsewhere, wireline telecommunications operator CenturyLink, Inc.’s issues firmed smartly, in line with a surge in the company’s stock driven by the news that it had signed a big contract with the state of Pennsylvania.

Valeant Pharmaceuticals International Inc.’s recently priced megadeal continued to firm smartly in active trading on Monday, a week after it came to market. The Canadian drug manufacturer’s existing issues were also seen better on busy volume.

PetSmart gets pummeled

PetSmart’s several issues were taking a pounding on Monday.

The Phoenix-based pet food and pet supplies retailer’s 8 7/8% notes due 2025 closed down 5/8 point, at 74½ bid, with over $32 million traded.

Its 7¾% notes due 2022 “traded like a real dog today,” one of the traders quipped, noting that the bonds swooned by over 2½ points to end at 71 bid, on volume of over $30 million.

The company’s 5 7/8% notes due 2025 lost 1½ points to end at 84½ bid, with about $9 million traded.

A market source cited news reports indicating investor angst over the possibility that PetSmart – which took on substantial debt earlier this year to buy Chewy.com, an online seller of pet supplies – might decide to spin the valuable segment off to its private-equity sponsors, aided by a loose covenant structure that would allow such a transaction to take place.

CenturyLink seen better

Elsewhere, CenturyLink’s bonds were seen solidly better across the board.

The Monroe, La.-based wireline telecom operator’s 6¾% notes due 2023 jumped by 1 3/8 points, to 96½ bid, with over $20 million traded, while its 7½% notes due 2024 gained almost 1 full point to finish at 97½ bid, with over $10 million of volume.

The notes rose in tandem with CenturyLink’s New York Stock Exchange-traded shares, which rose by $1.20, or 8.18%, to end at $15.87. Volume of 37.2 million shares was more than 2½ times the norm.

The shares rose, and brought the bonds along for the upside ride, on the news that the company had signed a big contract with the state of Pennsylvania to provide data networking services to its many thousands of employees.

Valeant the volume leader

For a second successive session, traders noted that the big recently priced offering from Valeant Pharmaceuticals International was the most actively traded junk bond of the day Monday, with over $44 million seen having changed hands, on top of Friday’s market-leading $41 million of turnover.

And for a second day in a row, the new 9% notes due 2025 firmed smartly, with one trader pegging the notes at 101¾ bid, calling them up 1 point on the day.

A second trader saw the new notes in a 101 1/8-to-101 5/8 bid context, which he said was a 1 1/8 point rise.

The notes had also shot up by 1¼-to-1½ points on Friday.

The Laval, Que-based drug manufacturer had priced $1.5 billion of the notes at 98.611 last Monday, to yield 9.25%.

The bonds had quickly moved up to around the par level in initial aftermarket dealings following that unscheduled drive-by offering, and continued to steadily firm after that.

Valeant’s existing paper was meantime also up sharply for a second consecutive session on Monday; its 5 7/8% notes due 2023 firmed to 91 ¼ bid, a gain of ¾ point on the day, on volume of over $8 million.

On Friday, the issue had jumped by 1¾ points.

Valeant’s 6 1/8% notes due 2025 improved to 90 ¼ bid, up 1 3/8 points on the session, with over $20 million of that paper having traded. On Friday, those bonds were 7/8 point better, with over $12 million having traded.

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