PetSmart slide continues, Mattel off, telecoms, energy issues mixed; Oasis converts hammered down

By Paul Deckelman

New York, Dec. 12 – PetSmart Inc.’s paper continued to be the big story in the distressed debt market on Wednesday, as the embattled specialty retailer’s beleaguered bonds resumed their painful parade downward, suffering big losses in active trading for a third straight session.

Elsewhere among the issues from underperforming companies and sectors, Mattel Inc. continued to lose ground following Monday’s ratings downgrade, with all three major agencies having now booted the toymaker out of investment grade and into junk territory, even as it shops a new $1 billion bond issue.

Wireline telecommunications names were mixed, with CenturyLink, Inc. and Windstream Services seen better, but Frontier Communications Corp. again on the downside.

Ditto for energy credits, with sector bellwether name California Resources Corp. continuing to trade strongly, while sector peers MEG Energy Corp. and Denbury Resources Inc. were lower.

In the convertibles market, another energy credit –Oasis Petroleum Inc.’s 2023 paper – continued its downward spiral during Wednesday’s session, losing another 2 points after a 6-point drop on Tuesday. There was a large sell-off of stock on Tuesday as investors responded negatively to the petroleum company’s $946 million acquisition of acreage in Texas’ Delaware Basin.

PetSmart pain continues

For a third straight session, PetSmart Inc.’s bonds remained the market’s favorite punching bag, “getting beat up again,” a trader said.

He saw the Phoenix-based pet food and pet supplies retailer’s unsecured 7 1/8% notes due 2023 hammered down to around 60 bid, a 5-point loss on the session.

Its 8 7/8% notes due 2025 ended “a little higher than that,” at 62½ bid, while its secured 5 7/8% notes due 2025 were down around 3 points on the day, at just under 76 bid.

Volume on each was topping the $40 million mark, another trader said.

The bonds had also gotten clobbered on Monday and again on Tuesday, losing multiple points each day in active dealings on a combination of investor worries about weak EBITDA numbers as well as fears that management might opt to sell its lucrative Chewy.com online pet supplies business to its private equity sponsors, thus removing the unit’s revenues and earnings from the overall company, which would still be stuck with the $2 billion of junk bonds it issued in May to fund that major acquisition.

Mattel decline continues

Mattel Inc.’s notes were again on the downside on Wednesday, with the company’s 3.15% notes due 2023 seen down 1½ to 2 points on the day.

Its 5.45% long bonds due 2041 were off by 1¾ points, to around the 82½ bid level.

The paper had also posted losses on Tuesday, in response to Monday’s actions by Fitch Ratings and Moody’s Investors Service lowering the El Segundo, Calif.-based toy manufacturer’s ratings to the junk category from investment grade previously.

Standard & Poor’s had already cut Mattel’s ratings to junk back in August.

Telecom names end mixed

Elsewhere, the wireline telecom sector was strongly bifurcated on Wednesday, with CentyuryLink, Inc.’s 6¾% notes due 2023 shooting up by 1¾ points to end at 99 bid.

The Monroe, La.-based company’s notes have been strong all this week after it announced on Monday that it had inked a five-year pact to provide the state of Pennsylvania with a variety of data services.

Little Rock, Ark.-based sector peer Windstream Services’ 6 3/8% notes due 2023 ended at 66 bid, up ½ point on the day.

But Stamford, Conn.-based Frontier Communications’ 7 5/8% notes due 2024 were seen down ½ point on the day, at 70 bid.

Cal Res continues climb

A trader saw California Resources Corp.’s 5½% notes due 2021 “up solidly” at 85 bid, a gain of 1¾ points on the session Wednesday.

It’s 8% notes due 2022 were meantime holding steady around 77 3.8 bid, 77 7/8 offered.

But Calgary, Alta. Based MEG Energy’s 6 3/8% notes due 2023 lost 1 full point, closing at 90 bid, while its 7% notes due 2024 lost 50 cents, ending at 90½ bid.

Plan, Texas based E&P company Denbury Resources’ 6 3/8% notes due 2021 were ¼ point easier at 77¾ bid.

Crude prices meantime dropped for a second straight session, with January delivery West Texas Intermediate crude off by 54 cents per barrel at $56.50.

No oasis

In the convertibles market, Oasis Petroleum’s 2.625% converts due 2023 continued to lose ground on Wednesday after the company’s stock was pummeled on Tuesday. The notes sunk to 105.125 during Wednesday’s session, more than a 2-point drop from Tuesday’s closing trade of 107.884, according to Trace data.

The notes dropped about 6 points on Tuesday following the company’s announcement of its purchase of acreage in the oil and natural gas rich Delaware Basin. The $946 million deal consisted of $483 million cash and 46 million shares.

Concurrent to the acquisition announcement, Oasis priced 32 million shares of common stock for net proceeds of $305.6 million Monday night. Oasis stock sunk to $8.10 at Wednesday’s close, a decrease of 2.76%. Stock fell about 17% on Tuesday.

Despite investor reaction to the new acquisition, analysts remain bullish on Oasis with price targets for stock ranging from $11.00 to $14.00 after the acquisition announcement.

Abigail W. Adams contributed to this review

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