Mallinckrodt dives after legal move; J.C. Penney down post-earnings

By James McCandless

San Antonio, May 21 – A combination of legal developments and earnings was at the root of distressed trading on Tuesday.

Mallinckrodt plc’s notes took a dive after announcing that it had filed a lawsuit against the United States government over a regulatory change that threatens past and future revenue.

Sector peer Teva Pharmaceutical Industries Ltd.’s issues moved higher after days of declines.

Meanwhile, in retail, J.C. Penney Co., Inc.’s paper declined after issuing an earnings report with mixed results.

Cosmetics seller Revlon, Inc.’s notes saw an improvement.

California Resources Corp.’s and Ensco Rowan plc’s issues fell and Halcon Resources Corp.’s paper rose as oil futures ended mixed.

In the automotive space, Delphi Technologies plc’s and Adient plc’s were both under pressure.

Mallinckrodt dives

Mallinckrodt’s notes were diving throughout the Tuesday session, traders said.

The 5 5/8% notes due 2023 dropped 9 points to close at 71 bid. The 5¾% notes due 2022 also lopped off 9 points to close at 84½ bid.

The two tranches combined saw $45 million on the tape by the close.

Early Tuesday, the Staines-upon-Thames, U.K.-based drugmaker announced that it had filed a lawsuit against the U.S. Department of Health and Human Services and the Centers for Medicare and Medicaid Services.

The company wants to overturn a change in how the government calculates Medicaid rebates for its Acthar Gel medication that would see the drugmaker paying as much as $600 million in retroactive rebates and a 10% increase in rebate payments going forward.

“It’s terrible news for them, plus the short sellers were already circling,” a trader said. “Nobody saw this coming, though. They painted a pretty rosy picture in their last conference call.”

Teva moves back up

Facing its own legal problems, Petach Tikva, Isreal-based sector peer Teva’s issues ended higher.

The 3.15% notes due 2026 gained ½ point to close at 80½ bid. The 4.1% notes due 2046 rose 2¼ points to close at 69½ bid.

The company was named in an antitrust lawsuit last week on accusations that it conspired with other drugmakers to keep drug prices artificially high.

The news pushed the company’s structure further into distressed territory.

J.C. Penney down, Revlon better

Meanwhile, in the retail space, J.C. Penney’s paper was declining, market sources said.

The 5 7/8% paper due 2023 lost 1 point to close at 84¼ bid. The 8 5/8% paper due 2025 fell 3½ points to close at 55 bid.

The Plano, Texas-based department store chain released its first-quarter earnings on Tuesday morning.

The company reported a loss of 46 cents per shares, larger than the 39 cents per share loss expected by analysts.

On a positive note, the name showed better-than-expected $2.56 billion in revenue.

“Not much surprising here,” a trader said. “Retailers might take another hit if more tariffs are enacted.”

New York City-based cosmetics producer Revlon ended the session better.

The 5¾% notes due 2021 added ¼ point to close at 90¼ bid. The 6¼% notes due 2024 gained 2¼ points to close at 66 bid.

Oil futures mixed

Another mixed day for oil futures led to varied results for distressed oil names, traders said.

Los Angeles-based independent oil and gas producer California Resources’ issues were in decline.

The 6% notes due 2024 dropped 3¼ points to close at 64¾ bid. The 8% notes due 2022 shaved off ¼ point to close at 79¼ bid.

London-based contract driller Ensco Rowan’s paper followed a similar path.

The 5.2% paper due 2025 declined ½ point to close at 74½ bid. The 7¾% paper due 2026 slid 3¼ points to close at 81 bid.

Houston-based sector peer Halcon Resources’ notes gained.

The 6¾% notes due 2025 garnered 2 points to close at 47 bid.

West Texas Intermediate crude oil futures for June delivery were 11 cents lower to $62.99 per barrel by the Tuesday close.

North Sea Brent crude oil futures for July delivery finished the day at $72.18 per barrel on a 21-cent gain.

Delphi, Adient under

In the automotive space, Delphi’s notes were also under pressure, market sources said.

The 5% notes due 2025 traded down 1½ points to close at 88½ bid.

In a recent first-quarter earnings report, the London-based powertrain manufacturer showed earnings of 67 cents per share, beating estimates.

However, it disappointed on earnings with $1.15 billion.

The blame was placed on declining sales in China.

“It’s not completely under the radar, but these auto parts guys are also hurting over this trade stuff,” a trader said. “That’s a trend that will continue if the China situation continues to tighten.”

Dublin-based sector peer Adient’s paper was also trailing.

The 4 7/8% paper due 2026 lost ½ point to close at 76½ bid.

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