PG&E in focus, trades up on restructuring deal; McDermott gains continue; Frontier eyed

By Abigail W. Adams

Portland, Me., Jan. 23 – Pacific Gas & Electric Co. was in focus in the distressed debt space on Thursday following news of a restructuring agreement reached between the utility and its creditors.

While the notes traded up several points following news of the agreement, their upward momentum was stifled after California governor Gavin Newsom voiced his objection and threatened a state takeover.

McDermott International, Inc.’s 10 5/8% senior notes due 2024 were active with the notes continuing to gain as investors eye the notes’ recovery potential.

Frontier Communications Corp.’s junk bonds were largely unchanged following a Fitch Ratings downgrade with a bankruptcy filing widely anticipated in the market.

Pacific Gas in focus

Pacific Gas & Electric’s junk bonds were again in focus following news the utility had struck a deal with its creditors that was beneficial for bondholders.

The bellwether 6.05% senior notes due 2034 were trading up on the news with the notes gaining 4 to 5 points since the announcement, a market source said.

The notes traded as high as 117 early in the session. However, they came in as the session progressed and stood poised to close the day at 115.

The restructuring agreement supported by Elliott Management and Pacific Investment Management Co. would replace existing debt with new notes, reinstate other senior notes and include the customary debt placement fees and reimbursements.

“It looks pretty attractive,” a market source said. The internal rate of return is double digits with a June 30 exit, the source said. “Everyone seems to like it.”

That is, everyone except the California governor.

Newsom filed an objection with the bankruptcy court on Thursday stating the plan did not meet the requirement that would allow the utility to access the wildfire funds established by the state.

Newsome stated he was pursuing intervention strategies that could include a state takeover.

McDermott gains

McDermott’s 10 5/8% senior notes due 2024 remained active with the notes continuing to gain following the company’s bankruptcy filing.

The 10 5/8% notes were bid up to 13½ on Thursday, a market source said.

Prior to the Houston-based multinational engineering, procurement, construction and installation company’s Tuesday bankruptcy filing, the notes were at 8 bid.

The notes were posting gains as investors eyed the recovery potential of the notes.

Investors stand to get a 19% recovery based on the company’s projections, a market source said.

McDermott’s 10 5/8% notes have been on a downward spiral since a ratings downgrade and emergency financing in late September.

However, the notes bottomed out in November following a missed coupon payment.

McDermott priced a $1.3 billion issue of the 10 5/8% notes at 94.75 in April 2018.

Frontier quiet

Frontier’s paper was relatively quiet in the secondary space following a ratings downgrade by Fitch.

While there was some activity in Frontier’s 10½% notes due 2022, the notes were largely trading sidewise, a market source said.

The 10½% notes were changing hands in the 44½ to 45 context during Thursday’s session.

With a bankruptcy filing from the Norwalk, Conn.-based telecommunications company widely anticipated by the market, the rating downgrade by Fitch did little to move the notes, a source said.

Fitch downgraded Frontier’s issuer default ratings to CC from CCC following several news reports that the company and its creditors had hired consultants to develop a reorganization plan.

Several recent media reports have stated the company plans to file for Chapter 11 bankruptcy protection in March.

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