Community Health notes stronger; Endo, Bausch paper improves; higher default rates eyed

By Cristal Cody

Tupelo, Miss., July 22 – The lift in junk hospital names early Friday on better-than-expected earnings reports extended to the distressed space over the session.

Community Health Systems Inc.’s senior secured notes traded about 2 points to more than 5 points higher on Friday ahead of its second-quarter earnings release next week.

Financial markets ended the week with attention shifting to a widely expected rate hike coming up at the Federal Reserve’s policy meeting on Wednesday.

Stock indices finished lower across the board with the S&P 500 index off 0.93% and the Nasdaq down 1.87%.

The iShares iBoxx High Yield Corporate Bond ETF fell a dime, or 0.13%, to $76.89.

Market volatility was modestly higher with the CBOE Volatility index up 0.09% at 23.13.

The gain in health care names also extended to the pharmaceuticals space on Friday.

Endo International plc’s paper was mostly higher in light trading with the 6 1/8% senior secured first-lien notes due 2029 (Caa2/CC) up 1½ points by the afternoon and trading 2½ points higher from a week ago.

Bausch Health Cos. Inc.’s notes improved by about ½ point to 1¼ points on the day and 5 points to more than 7 points on the week.

Meanwhile, default rates are set to rise across the U.S. and European high-yield and institutional leveraged loan markets in 2023 and 2024, according to a Fitch Ratings report.

Junk default rates are expected to increase to 1¼% to 1¾% in 2023, up from a 1% forecast rate for 2022.

“The HY retail default rate could reach 10%, with Carvana and Bed, Bath & Beyond as potential drivers, and have an outsized impact on 2023 defaults, despite the sector’s relatively small size,” Fitch said. “Conversely, high commodity prices will likely keep defaults below average for energy, the largest HY sector.”

The default rate in junk bonds was 0.5% in 2021 and 5.2% in 2020, according to the report.

CHS paper gains

CHS/Community Health Systems, Inc.’s 6 7/8% senior secured notes due 2029 (Caa2/CCC) were quoted at 64 7/8 bid, up 5 1/8 points from Thursday and more than 6½ points higher from a week ago, a source said.

Volume was steady on $4 million of paper traded.

Community Health’s notes were active on Friday with more than $10 million of paper traded over the day.

The 6 1/8% senior secured notes due 2030 (Caa2/CCC) traded up 3¼ points by early afternoon and went out about 2 points better on the day at 60 7/8 bid.

The issue was up more than 4 points on the week.

Looking ahead, the Franklin, Tenn.-based operator of acute care and outpatient facilities plans to post its second-quarter earnings results after the market closes on Wednesday.

Endo mostly higher

Endo’s paper saw light trading activity on Friday but ended the week mostly higher, a source said.

Endo Luxembourg Finance Co. Sarl’s 6 1/8% senior secured first-lien notes due 2029 (Caa2/CC) rose 1½ points to 80½ bid by the afternoon.

The issue was trading 2½ points higher from a week ago.

Endo Finance LLC’s 6% senior notes due 2028 (Caa3/C) were not seen in the secondary space on Friday after softening to 7¾ bid on Thursday. The issue traded at 9 bid a week ago.

Endo subsidiary Par Pharmaceutical Inc.’s 7½% senior secured notes due 2027 (Caa2/CC) also were quiet over the day. The issue traded Thursday at 78¾ bid, down ¼ point on the day but up 1¼ points on the week.

Endo is in the midst of 30-day grace periods before a default is declared after the company missed interest rate payments in June and earlier in July on its 5 3/8% senior notes due 2023 and 6% senior notes due 2023.

The Dublin-based pharmaceuticals company reported the missed payments were not driven by liquidity constraints since it had approximately $1.4 billion in cash as of March 31.

Bausch Health better

Bausch Health’s senior notes (B3/B-/B) improved on Friday by about ½ point to 1¼ points on the day and 5 points to more than 7 points on the week, a source said.

The company’s 5% senior notes due 2029 were up about ½ point at a print of 53.80, more than 5 points higher from a week ago.

Bausch’s 5¼% senior notes due 2031 rose 1¼ points in light trading to 53¼ bid, also better from where the issue traded a week ago at 45¾ bid.

The Laval, Quebec-based pharmaceutical company’s notes traded about 4 points to 6 points softer in the prior week.

Distressed index positive

The S&P U.S. High Yield Corporate Distressed Bond index remained positive on Thursday.

One-day total returns were 0.67%, compared to 1.18% on Wednesday, 0.34% on Tuesday and 0.67% on Monday.

Month-to-date total returns climbed to 1.05% from 0.38% on Wednesday, minus 0.79% on Tuesday and minus 1.13% at the week’s start.

Year-to-date total returns were at minus 21.81% on Thursday, minus 22.33% on Wednesday, minus 23.24% on Tuesday and minus 23.5% on Monday.

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