Frontier notes active post-Q4 report, rescinding dividend; Community Health issues drop after closure talk

By James McCandless

San Antonio, Feb. 28 – Traders reported spots of increased activity in the distressed debt market on Wednesday, as many high volume tranches were traded heavily on quarterly reports and other news.

Frontier Communications Corp. notes saw their ongoing high volume sustained by Tuesday’s quarterly earnings report and Wednesday’s news that it will rescind its quarterly dividend.

Issues in Community Health Systems, Inc. cratered after chief executive officer Wayne Smith made comments about further hospital closures during a Q4 earnings call.

Toys “R” Us, Inc. paper traded heavily after reports confirmed that its U.K. business arm was put into administration.

Other telecom names experiencing high activity on the day were Intelsat SA and Windstream Holdings Corp. Another downturn in oil futures spurred activity in California Resources Corp. and Ensco plc.

Frontier rescinds dividend

Norwalk, Conn.-based wireline telecom name Frontier Communications saw its notes decline after reports confirmed that it would be rescinding its $0.60 quarterly dividend in order to free up capital to pay down existing debt, reversing some of the gains made on Tuesday’s Q4 report. The company reported $2.22 billion in revenues for Q4.

“That was good for them,” a trader said. “People were wondering why they were paying out a dividend when they were so far leveraged on their debt. Why were they paying money out the door? Now they can preserve that cash for their debt”

The 7 5/8% notes due 2024 shaved off ½ point to close at 63½ bid. The 10½% notes due 2022 lost 1½ point to close at about 85 bid. The 11% notes due 2025 fell 1½ point to close at 78 bid.

Community Health plummets

Issues in the Franklin, Tenn.-based hospital operator fell sharply after market sources confirmed that CEO Wayne Smith made comments in an earnings call about the probability of further hospital closures coming this year. In the call, Smith expressed confidence in the company’s future but cautioned that downsizing is likely in order to better position the company for long-term success.

“While we are getting closer to where we would like to be as it relates to the number of hospitals we operate, we are currently working on additional divestitures,” Smith said. “The divestitures of these assets allow us to shift more of our resources to hospitals in networks with stronger market positions, higher growth potential and better profitability.”

The Q4 report showed a $2 billion net loss for the fourth quarter of 2017.

The 7 1/8% issues due 2020 fell 3 points to close at 84½ bid. The 6 7/8% issues due 2022 lost 3¾ points to close at 65 bid.

Toys ‘R’ Us U.K. unit insolvent

After Tuesday’s news that Wayne, N.J.-based bankrupt toy retailer Toys “R” Us was in talks to sell its Asia business segment, reports confirmed Wednesday that its U.K. arm has been placed in administration, with 105 stores facing risk of closure (see related story elsewhere in this issue).

“It’s a remarkable downward spiral in that all of this is happening in quick succession,” a trader said.

The 7 3/8% paper due 2018 fell by about 2¼ points to close just below 13¾ bid.

Telecom and oil active

Notes in Luxembourg-based satellite communications company Intelsat saw another active day after seeing a spike in activity Tuesday after comments by FCC chairman Ajit Pai suggested changes to the U.S. 5G network would have positive effects on it and other satellite names.

The Intelsat Jackson SA 5½% notes due 2023 dropped ¾ point to close at 83 bid. The 7¼% notes due 2020 lost about 1 point to close at 92¾ bid.

Little Rock, Ark.-based telecom solutions name Windstream’s issues were mixed after Standard & Poor’s downgraded its corporate family rating and its probability of default rating Wednesday (see related story elsewhere in this issue).

The 6 3/8% issues due 2023 dropped 4½ points to close at about 58 bid. The 7½% issues due 2022 hiked up about 1¾ point to close near 69¾ bid. The 7¾% issues due 2021 lost about 1¾ point to end under 72¾ bid.

A 2-point drop in oil futures led to high activity in distressed oil names.

Los Angeles-based independent oil and gas name California Resources saw its 6% paper due 2024 jump about 1½ point to close under 63 bid.

Britain-based oil and gas driller Ensco’s 5¾% bonds due 2044 lose more than a point to close at above 69 bid.

“Activity was good yesterday,” a trader said. “But if the market continues to be this volatile people are going to keep holding onto their money. So activity in this market is dependent on what equity markets do. Watching that is all we can do.”

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