Dean Foods notes plummet on bankruptcy filing; McDermott International hits new low

By Abigail W. Adams

Portland, Me., Nov. 12 – New and suspected bankruptcy filings were the catalyst for trading activity in the distressed debt space on Tuesday with one long suspected filing taking place.

Dean Foods Co.’s 6½% senior notes due 2023 plummeted following news the company had filed for Chapter 11 bankruptcy protection.

McDermott International, Inc.’s 10 5/8% senior notes due 2024 continued their downward spiral with the notes hitting a new low during Tuesday’s session.

Chesapeake Energy Corp.’s junk bonds were again trending lower after a minor reprieve on Friday with crude oil futures in general weighing down the energy space.

Dean Foods in focus

Dean Foods’ long anticipated bankruptcy filing came to pass on Tuesday with the restructuring announcement made in lieu of the company’s earnings report.

The food and beverage maker’s 6½% senior notes due 2023 plummeted in active trading following the news.

The notes dropped almost 20 points.

The securities traded as low as 14½ during Tuesday’s session but closed out the day at 20¾, a market source said.

The bounce at the end of the day was most likely a short-squeeze, the source said.

With more than $42 million in reported volume by the late afternoon, the notes were among the most actively traded in the secondary space.

The notes closed out last week in the 30s.

The 6½% notes have been eyed by distressed debt players for much of the year as the company’s losses mounted.

Dean Foods announced a strategic review and asset sale amid weak earnings earlier in the year.

“They’ve been struggling for some time,” another source said.

The 6½% notes whipsawed between minor gains and large losses as investors weighed the company’s cost cutting measures and prospects for a sale.

While the bankruptcy filing was not a surprise to market players, there was a lot of buying activity in the notes as they traded down over the past few weeks.

There has been some short covering going on in the name.

Some players were buying the notes versus the credit default swap, a market source said.

McDermott’s new lows

McDermott’s 10 5/8% senior notes due 2024 hit a new low on Tuesday with the market anticipating a bankruptcy filing.

The notes dropped into the single digits on Tuesday.

They were down another 2 points and stood poised to close the day at 9¾, according to a market source.

The 10 5/8% notes have plunged since the company missed the Nov. 1 coupon payment on the bonds. The notes are in the 30-day grace period before a default event is triggered.

In addition to missing the coupon payment on the bond, construction at McDermott’s headquarters was halted after the company fell behind on payments to the general contractor.

Chesapeake active

Chesapeake Energy’s junk bonds were again active on Tuesday with the notes giving back their gains from a minor reprieve on Friday.

Chesapeake’s 8% senior notes due 2027 were down 1¾ points to close the day at 54¼.

More than $25 million bonds were on the tape by the late afternoon.

The notes gained about 1½ points on Friday to close last week at 56. They were trading around 67 at the start of last week.

While volume was lighter, Chesapeake’s 8% senior notes due 2025 traded down 2½ points to close the day at 57½.

They gained 3¾ points on Friday to close last week at 59½.

The notes were on a 70 handle at the start of last week.

Both tranches dropped more than 10 points in a sell-off that was triggered by the company’s third-quarter earnings report.

Since the report, there has been mounting concern about the company’s ability to comply with the covenants on its debt, sources said.

That concern, coupled with lower crude oil futures, again drove the notes down on Tuesday.

The barrel price of WTI crude oil for December delivery traded as low as $56.54 on Tuesday before settling at $56.78, a decrease of 8 cents, or 0.14%.

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