Mallinckrodt notes up as company eyes another bankruptcy; Michaels better; Level 3 mixed

By Cristal Cody

Tupelo, Miss., June 5 – Mallinckrodt plc’s paper rose on Monday on a chunk of trading action on news of a possible Chapter 11 bankruptcy filing, barely a year after the company last emerged from Chapter 11.

Mallinckrodt’s 10% second-lien notes due 2025 (Caa1/CCC+) improved ¾ point by the close.

Market tone was soft at the start of the week with stocks edging lower.

The CBOE Volatility index was up 1% at 14.75.

The iShares iBoxx High Yield Corporate Bond ETF fell 5 cents, or 0.07%, to $74.53.

Looking at distressed retail paper, Michaels Cos, Inc.’s 7 7/8% senior notes due 2029 (Caa2/CCC) pushed 1¼ points higher in active trading.

Some of the most active distressed paper traded Monday was from Lumen Technologies, Inc. subsidiary Level 3 Financing, Inc., which traded mostly higher after the company held its investor day and announced several major updates, a source said.

The 3 5/8% senior notes due 2029 (B1/B) fell more than ¼ point in the most active issue, while the company’s other bonds were seen about 1¼ points to 2 points better on the day.

Meanwhile, S&P Global Ratings on Monday highlighted an increase in its weakest links to a two-year high across a range of sectors.

“Some commodity-driven sectors have exhibited positive trends, while most, notably health care and high technology, are under increasing pressure,” S&P said.

Mallinckrodt active

Mallinckrodt’s 10% second-lien notes due 2025 (Caa1/CCC+) traded ¾ point better by the close on Monday after the company reported the potential for a new Chapter 11 bankruptcy filing, a source said.

The notes went out at 78 bid on $5 million of secondary action.

The notes were issued by Mallinckrodt International Finance SA in connection with the company’s exit from Chapter 11 bankruptcy in 2022.

The Dublin-based pharmaceutical company announced its exit from Chapter 11 bankruptcy on June 16, 2022.

On Monday, Mallinckrodt said in a regulatory filing that substantial holders and lenders have sent letters, including holders of the 10% notes, encouraging an evaluation of the company’s financial status and its options in making a $200 million payment for the company’s opioid-related settlement due on June 16.

Michaels improves

Elsewhere, Michaels Stores’ 7 7/8% senior notes due 2029 (Caa2/CCC) climbed 1¼ points on $6.3 million of secondary volume on Monday, a source said.

The notes went out at 62½ bid.

The Irving, Tex.-based arts and crafts retailer was taken private in 2021 by funds managed by Apollo Global Management, Inc. affiliates.

Level 3 mostly up

Level 3 Financing’s bonds were among the most active distressed paper traded on Monday, sources reported.

Tranches were mostly higher, though the 3 5/8% senior notes due 2029 (B1/B) fell more than ¼ point to a 56 bid handle on more than $11 million of volume in the most active issue.

Level 3 Financing’s 4¼% senior notes due 2028 (B1/B) rose 1¼ points to 61¼ bid on $7.27 million of trading.

Other issues were up in lighter trading, including the 4 5/8% senior notes due 2027 (B1/B) that traded 2 points higher at the 66½ bid area on $3.75 million of supply.

The company’s 3¾% senior notes due 2029 (B2/B) improved 1¾ points to 56½ bid on $3.3 million of volume.

Parent Lumen’s notes also improved about 2 points on Monday following its investor updates, but trading was thin, according to the market source.

Lumen on Monday reported that it is offering new internet service for customers in 18 cities under its brand, Quantum Fiber.

Also, Lumen announced the upcoming launch of its Operator Connect for Microsoft Teams phone offering as part of its collaboration with Microsoft.

In March, Level 3 conducted an offer to exchange eight series of senior notes for up to $1.1 billion of new 10½% senior secured notes due 2030.

The Denver-based telecommunications company’s stock (NYSE: LUMN) dropped 5% to $1.91 on Monday.

Distressed index gains

S&P U.S. High Yield Corporate Distressed Bond index one-day returns finished Friday higher at 0.95%, up from 0.26% on Thursday.

Month-to-date total returns on Friday were 1.22%.

Year-to-date total returns rose to 7.94% on Friday from 6.92% in the prior session and 7.23% at the week’s start.

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