Endo bonds improve; Mallinckrodt up; Kaisa, Evergrande trade lower; secondary quiets

By Cristal Cody

Tupelo, Miss., Nov. 5 – Distressed junk bonds went out mixed on Friday as Treasury yields dropped following the Labor Department’s upbeat October jobs report.

“There was a pretty significant rally after the employment number and a dovish Fed on Wednesday, although they initiated their taper,” a source said. “You had a massive 10-point rally in Treasuries in the long bonds. All of which sent our market scrambling higher.”

The Labor Department said October nonfarm payroll employment rose by 531,000, while the unemployment rate fell 0.2 percentage point to 4.6%.

The report beat market forecasts of a gain of 450,000 jobs and an unemployment rate of 4.7%.

The 10- and 30-year Treasury note yields dropped 7 basis points on Friday.

“It’s been a bit of short covering and guys who were not anticipating this move, so we had a little bit of an overreaction,” the market source said. “Secondary-wise, it’s been very quiet with a couple small things trading. Anything Treasury-sensitive had a big move today.”

The iShares iBoxx High Yield Corporate Bond ETF added 33 cents to close at $87.50.

Measured market volatility rose more than 5% on Friday.

The Chicago Board Options Exchange’s CBOE Volatility index was up 6.74% at 16.48.

Oil recovered some of the week’s losses after OPEC and participating non-OPEC countries on Thursday reconfirmed a plan to increase production by 400,000 barrels a day in December, the same pace as November.

West Texas Intermediate crude oil benchmark futures for December deliveries rose $2.46 to settle at $81.27 a barrel.

Oil is predicted to climb past $100 a barrel over the next few months, a source said.

Energy-related bonds edged higher in light trading.

Petroleum refiner PBF Energy Inc.’s 6% senior notes due 2028 (Caa1/B/B+) traded about ¼ point better.

Secondary buyers were active over the session with a few sellers seen, a source said.

“Overall, there was better buying,” the source said. “If you have anything for sale, you could get it sold today.”

Endo International plc’s 6% senior notes due 2028 (Caa3/CCC-) softened slightly but were ending the week up 6 1/8 points.

Mallinckrodt plc’s bonds headed higher on Friday in a market lift following a California court ruling in Endo’s favor on Tuesday.

Mallinckrodt’s 5¾% notes due 2022 were closing the week nearly 10 points stronger.

In other market action, Kaisa Group Holdings Ltd.’s dollar bonds mostly quieted on Friday after trading was halted in the company’s Hong Kong-listed shares over the morning and a day after a subsidiary missed a debt payment.

Bonds in the sector have plunged since September after China Evergrande Group missed a bond payment and following missed bond payments from Fantasia Holdings Group Co. Ltd. and Modern Land (China) Co., Ltd. in October.

China Evergrande Group’s 8¾% senior notes due 2025 (C/C/C) softened ½ point over the day.

PBF paper mixed

PBF Holding Co. LLC’s paper was mixed with the company’s 6% senior notes due 2028 (Caa1/B/B+) about ¼ point better on Friday at the 72¼ bid area, a source said.

The Parsippany, N.J.-based issuer’s 7¼% senior notes due 2025 (Caa1/B/B+) traded about ¼ point softer with a 77½ handle by late afternoon.

Endo stronger on week

Endo Finance LLC’s 6% senior notes due 2028 (Caa3/CCC-) gave back some of the week’s gains with the notes down about 7/8 point at 75 7/8 bid by the close on Friday, a source said.

The notes were ending the week 6 1/8 points higher.

The Dublin-based pharmaceutical maker’s bonds rallied this week after the company announced Tuesday that a California state trial ruled that its subsidiaries are not liable for opioid-related claims.

Mallinckrodt higher

Bankrupt pharmaceuticals maker Mallinckrodt’s 5¾% notes due 2022 rose ¾ point to 54 bid, nearly 10 points stronger on the week, a source said Friday.

Opioid-related lawsuits against Mallinckrodt are moving through bankruptcy court.

The Dublin- and St. Louis-based company filed for Chapter 11 on Oct. 12, 2020 in the U.S. Bankruptcy Court for the District of Delaware.

Kaisa bonds mixed

Looking at China property developers, Kaisa Group’s paper was mostly quiet on Friday, a source said.

The company’s 9 3/8% senior notes due 2024 (Caa2//CCC+) improved 3 points to 31 bid after sliding 4 points on Thursday.

Kaisa’s 10 7/8% senior notes due 2023 (Caa2//CCC+) were not active and were last seen trading on Thursday down 4¾ points at 27¼ bid.

The Hong Kong Stock Exchange said in notices Friday that trading was halted at 9 a.m. in Kaisa’s shares at the company’s request pending the release of “an announcement containing inside information of its controlling shareholder.”

The notices followed reports on Thursday that a unit of the Shenzhen, China-based real estate developer missed a debt payment.

Kaisa was downgraded in the prior week by Moody’s Investors Service, S&P Global Ratings and Fitch Ratings over refinancing concerns about upcoming maturities the company faces, including $400 million of notes due Dec. 7.

Evergrande lower

China Evergrande’s 8¾% senior notes due 2025 (C/C/C) fell ½ point to 25 bid during the session, a source said.

The notes were about ½ point lower on the week.

The Shenzhen, China-based real estate developer’s paper saw some gains after Evergrande made a second bond payment during the prior week.

Distressed index soft

Distressed index returns remained soft in the first week of November.

The S&P U.S. High Yield Corporate Distressed Bond index’s one-day total return declined to minus 0.16% on Thursday from minus 0.7% on Wednesday, a positive 0.23% on Tuesday and minus 0.05% on Monday.

Month-to-date total returns softened to minus 0.68% from minus 0.52% on Wednesday, 0.18% on Tuesday and minus 0.05% at the week’s start.

Year-to-date total returns edged down to 28.14%, comparted to 28.36% on Wednesday, 29.26% on Tuesday and 28.97% on Monday.

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