Dynegy ticks higher into Monday but stock plummets; Petsmart active; Intelsat quiet

By Colin Hanner

Chicago, May 22 – The first trading day of the week brought mostly lackluster activity in the distressed debt market, with two issuers soaking up most of the liquidity throughout the session.

Coming off an upbeat Friday session with buzz of a possible takeover bid from rival Texas electric power generation company Vistra Energy Corp., Dynegy Inc. continued to climb higher on Monday, though a selloff in the stock late in the day seeped into the bond market.

“It’s getting undone at the end of the day,” a trader said. “We’ll find out soon enough what it is.”

Away from what is sure to see more developments, PetSmart, Inc.’s existing bonds ticked higher on news that the company will begin a roadshow for a two-part offering of notes to finance its acquisition of Chewy Inc., a Dania Beach, Fla.-based online retailer of pet food and other pet-related products.

An earnings call from Thursday for St. Clairsville, Ohio-based private coal company, Murray Energy Corp., pointed to signs of positivity, as Murray continued to gain for the second day in a row.

Satellite telecommunications company Intelsat SA, which was slightly easier on Friday’s session, moved up fractionally on Monday.

Downgrades to Frontier Communications Corp. and Claire’s Stores Inc. caused a mixed bag of movement on the session, though both issues did not drift too far from where they started.

And several energy names were higher in tandem with crude oil, which rose on the confidence of supply cuts extending for Organization of Petroleum Exporting Countries.

Dynegy higher – but questions

Vistra Energy – the post-reorganization successor company to the old TXU Corp. and its various component companies – was whispered as taking over Dynegy on Friday and much of that confidence carried over into Monday.

Dynegy’s 8% notes due 2025 were up ¼ point to 98¼.

And its 8.034% notes due 2024 were up 1½ points to 92¼.

Yet, around 3:30 p.m. ET Dynegy’s stock nosedived, finishing the day down 96 cents, or 10.53%, to $8.16. Market sources speculated that the potential deal might be falling apart, though some said it could be unrelated.

Regardless, speculation arose.

“Maybe it has something to do with [the deal rumors],” a trader said. “But maybe not. It didn’t seep into the [bond market] because it was too late” in the session.

A market source said he had seen a few lower prints at the end of the session, adding that “maybe someone in equities knows something.”

On Friday, The Wall Street Journal reported that Dallas-based Vistra was making a bid to acquire Dynegy in hopes of being able to diversify beyond its own home base in Texas, since Dynegy has extensive operations elsewhere, including the Midwest.

PetSmart’s deal lifts bonds

“Doubling” the volume of any other distressed issuer, PetSmart was up higher on the session as its 7 1/8% notes due 2023 added ¾ point to 93¾ on nearly 60 trades, a market source said.

On Monday, PetSmart began a roadshow in New York for a $2 billion two-part offering of eight-year notes, according to Prospect News.

The deal includes $1.35 billion of senior first-lien notes (Ba3) and $650 million of senior notes (B3).

Along with cash on hand and an approximately $1 billion equity contribution, the company plans to use the proceeds of the notes to finance its most recent acquisition, of Chewy Inc.

Murray continues gains

Murray Energy ticked higher into Monday off what appears to be a positive earnings call that took place on Thursday. Its earnings are kept private due to the nature of the company.

Its 11¼% notes due 2021 were up 1 5/8 points to 76 1/8, a trader said, while a market source said the notes were up 1½ points to 76.

“Its earnings are catching up,” a market source said.

On Friday, the same notes were up 1¼ points on $40 million volume.

Intelsat eases

With an amended exchange offer in the rearview mirror, Intelsat SA took a breather on the session staying flat or moving fractionally higher in its notes.

Intelsat Jackson Holdings SA’s 7¾% notes due 2021 were unchanged at 55½, a trader said.

And Intelsat Luxembourg Holdings SA’s 8 1/8% notes due 2023 were up ½ point to 54½.

Initial response to the amendments had been positive, causing the bonds to rise in trading on several days last week.

Downgrades cause movement

For Frontier Communications, a downgrade by Moody’s Investor Services caused movement in its bonds on the session, a market source said.

Its 7 5/8% notes due 2024 were up ¼ point to 84¾ and its 7 5/8% notes due 2024 were up by the same margin to 84¾.

Its 10½% notes due 2022 were down 1/8 point to 99 3/8.

On Monday, Moody’s downgraded Frontier’s corporate family rating to B2 from B1, probability of default rating to B2-PD from B1-PD, secured debt rating to B1 from Ba3 and unsecured debt rating to B2 from B1 based on the company’s persistently weak operating trends.

The negative outlook reflects Moody’s expectation of continued pressure on subscribers and EBITDA, the rating agency said.

S&P took a dig at Claire’s Stores, lowering the issue-level rating on the company’s senior secured first-lien debt facilities to CC from CCC-, though it raised the issue-level rating on the company’s senior secured second-lien debt and senior unsecured debt to C from D.

Its 9% notes due 2019 were down 3/8 point to 48½.

Oil higher

Stemming from comments made on Sunday by Saudi Arabia’s energy minister Khalid Al-Falih, crude oil settled comfortably over the $50 per barrel benchmark on Monday.

Ahead of an OPEC meeting to be held later this week, Al-Falih said countries currently participating in supply cuts would extend them into the early part of 2018.

Distressed oil names followed, including California Resources Corp., whose 8% notes due 2022 were up 7/8 point to 78½, a trader said.

And Canadian oil sands producer MEG Energy Corp.’s 7% notes due 2024 were up 1 point to 89.

-Paul Deckelman and Paul A. Harris contributed to this review

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