Talen paper gains after bankruptcy filing; Endo under pressure; distressed returns weak

By Cristal Cody

Tupelo, Miss., May 10 – Talen Energy Supply LLC’s bonds climbed more than 15 points after the company announced on Tuesday it had filed for Chapter 11 bankruptcy.

S&P Global Ratings dropped the paper to D over the session.

Market tone was mostly better with volatility down following Monday’s slide.

The iShares iBoxx High Yield Corporate Bond ETF closed up 44 cents to $77.21.

Market volatility dropped over 5% on Tuesday but remained high since climbing last week following the Federal Reserve’s 50-basis-point rate hike.

The Chicago Board Options Exchange’s CBOE Volatility index fell 5.06% to 32.99.

Endo International plc’s paper continued to mostly wilt following the nose-dive on Friday and additional losses on Monday.

Endo Finance LLC’s 6% senior notes due 2028 (Caa3/CCC-) traded on Tuesday down 1¼ points.

Meanwhile, corporate distressed bond index returns remained in the negative space at the start of the week.

Talen Energy up

Talen’s 10½% senior notes due 2026 (C/D/CCC) jumped over 15 points in heavy trading on Tuesday, going out at 58 bid, a source said.

The issue climbed 6 points out of the gate and rose another 10 points by the close.

The notes went out Monday around 42 bid, down from 45 bid on Friday.

Talen’s 6½% senior notes due 2025 (C/D/CCC) also climbed to the 60 bid area by late afternoon, up from the 41 bid range on Monday.

The Woodlands, Tex., and Allentown, Pa.-based power generation and infrastructure company’s senior notes dove to the low 20s in March on restructuring reports.

The company’s credit default swap spreads had widened to as high as 15,906 bps in the week ended March 30.

Talen’s CDS spreads were better in the last week ended Wednesday by 306 bps at 6,061 bps, a market source said.

Parent company Houston-based Talen Energy Corp. announced on Tuesday that Talen had filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas.

The company reported it has secured $1.76 billion of debtor-in-possession financing and plans a recapitalization transaction that includes a restructuring support agreement with its unsecured noteholders.

The bondholders hold about 62% of the paper and have agreed to enter into a backstop commitment for a common equity rights offering of up to $1.65 billion. The noteholders also have agreed to equitize more than $1.4 billion of the unsecured notes.

Talen said in the release that it plans to confirm a Chapter 11 plan of reorganization in about six months.

In April, both S&P and Moody’s Investors Service said Talen Energy’s capital structure was unsustainable.

Endo notes mixed

Endo’s 6% senior notes due 2028 (Caa3/CCC-) traded down 1¼ points on Tuesday to hit 14½ bid by the day’s end, a market source said.

The notes on Friday sank 26½ points to 17 bid.

Endo’s 9½% senior secured second-lien notes due 2027 (Caa2/CCC-) steadied over the session to head out mostly flat from Monday at 31½ bid.

Endo’s paper sank about 4¼ points to over 26 points on Friday after the company reported weak first-quarter earnings and limited financial guidance for the year.

The Dublin-based pharmaceuticals maker is projecting a loss from continuing operations of 15 cents to 17 cents a share on $500 million to $525 million of revenue for the second quarter.

Distressed index soft

S&P U.S. High Yield Corporate Distressed Bond index returns stayed in negative territory at the start of the week.

One-day total returns were minus 1.41% on Monday, down from minus 0.72% in the same session last week.

Month-to-date total returns for May were sitting at minus 5.29% on Monday.

Year-to-date index returns slid to minus 12.76% at the start of the week versus minus 8.55% in the May 2 session.

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