Kohl’s lower ahead of earnings report; Mallinckrodt quiet after Friday’s slide; Endo off

By Cristal Cody

Tupelo, Miss., Aug. 15 – Retail paper was in focus with several issuers scheduled to post second-quarter earnings results, including Walmart Inc. on Tuesday and Kohl’s Corp. on Thursday.

Kohls’ 5.55% senior notes due 2045 (Baa2/BBB-) were down about 1½ points on Monday and have been treading water in the distressed space over the summer with the issue down more than 15 points since May.

Market tone was mostly strong over the day with the junk primary market open and stock indices all closing higher.

The iShares iBoxx High Yield Corporate Bond ETF fell 14 cents, or 0.18%, to $78.80.

Measured market volatility edged up 2.15% with the CBOE Volatility index at 19.95.

Crude oil was down more than $3 on the day.

Meanwhile, pharmaceutical issuers continue to see distressed secondary action.

The 10% second-lien notes due 2029 (Caa2/CCC) that Mallinckrodt plc issued in connection with its emergence from Chapter 11 bankruptcy in June were quiet on Monday after the issue sank more than 10 points on Friday.

The drop followed Mallinckrodt’s report Thursday that its second-quarter losses more than doubled from a year ago.

The U.S. junk default rate could hit 1% this month, according to a Fitch Ratings report released Monday.

The high-yield top market concern default rate has been steady at 0.8% since May, Fitch said.

July marked the sixth month with no default volume.

“Still, the default rate could rise to 1% by the end of August if Endo International files for bankruptcy along with The Geo Group Inc. and Ahern Rentals Inc. completing distressed debt exchanges,” Fitch said.

“While Fitch expects a 1% YE 2022 default rate, a couple of issuers baked into our 2023 forecast could restructure earlier, including Bed, Bath & Beyond, Avaya and Cooper-Standard Automotive,” according to the note. “This might push the rate just above the 1% projection.”

Endo International plc’s notes softened in light trading as the grace period for a missed bond payment was set to expire over the session.

Kohl’s softens

Kohl’s 5.55% senior notes due 2045 (Baa2/BBB-) were trading in the 75½, 76½ bid context on Monday in mostly light secondary activity, a source said.

The notes were down about 1½ points from Friday.

The retailer’s notes have declined from the 91 bid area at the end of May.

The issue traded at the 114 bid range at the start of the year.

Kohl’s, which announced in July that it called off placing the business up for sale, will release second-quarter financial results on Thursday.

The Menomonee Falls, Wis.-based department store chain had reported that it expected second-quarter sales to be down “high-single digits.”

Mallinckrodt quiet

Mallinckrodt’s 10% second-lien notes due 2029 (Caa2/CCC) were quiet on Monday after the issue dropped about 11 points to the 47 bid area on Friday in volume that put it among the most active junk issues traded Friday, a source said.

The paper, issued by Mallinckrodt International Finance SA, was last seen in the secondary market in early August at 58 bid.

Mallinckrodt issued the notes in connection with its emergence from Chapter 11 bankruptcy in June.

The Dublin- and St. Louis-based pharmaceutical company on Thursday reported second-quarter losses more than doubled from a year ago.

Endo slightly lower

Endo’s bonds were slightly softer in light trading action on Monday as the grace period for a missed bond payment was set to expire over the session, a market source said.

Endo subsidiary Par Pharmaceutical Inc.’s 7½% senior secured first-lien notes due 2027 (Caa2/CC) dipped ¼ point to 84¼ bid.

Endo Luxembourg Finance Co. Sarl’s 6 1/8% senior secured first-lien notes due 2029 (Caa2/CC) softened 7/8 point to 84¼ bid on Monday.

Endo Finance LLC’s 6% senior notes due 2028 (C/C) last traded Friday at 5½ bid, off 7/8 point on the day and ½ point lower on the week.

A 30-day grace period was set to expire on Monday in connection with Endo’s missed $1.9 million payment due July 15 on its 5 3/8% senior notes due 2023.

The Dublin-based pharmaceuticals company reported earlier in August that it may file for Chapter 11 bankruptcy after posting a second-quarter loss of $1.89 billion, compared to a loss of $15.5 million last year.

Distressed index up

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns ended Friday at 0.18%, compared to 0.8% on Thursday, 1.05% on Wednesday, minus 0.18% on Tuesday and 0.79% at the start of the week.

Month-to-date total returns improved to 4% on Friday versus 3.81% on Thursday, 2.99% on Wednesday, 1.92% on Tuesday and 2.1% in the first session of the prior week.

Year-to-date total returns on Friday were minus 17.49%, compared to minus 17.64% on Thursday, minus 18.3% on Wednesday, minus 19.15% on Tuesday and minus 19% in the Aug. 8 session.

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