Distressed debt trading remains thin; Mallinckrodt falters as patents nixed; Fannie, Freddie decline

By Stephanie N. Rotondo

Seattle, Sept. 5 – The distressed-debt space continued to be subdued following the long holiday weekend, as investors instead opted for safer bets.

The flight to safety was seen across the board as concerns about North Korea flared up again, Hurricane Irma appeared poised to hit Florida and wildfires raged throughout the Pacific Northwest.

Mallinckrodt Pharmaceuticals was topical, however, after a federal judge invalidated 11 patents related to its Inomax respiratory treatment system.

In response, the company’s 4¾% notes due 2023 fell to an 86 to 86.25 context on round-lot trades, according to a market source. Among the day’s smaller-sized trades – which accounted for most of the volume in the name – paper was trading with an 85 handle, compared to previous levels in the 89 area.

The company’s equity didn’t fare all that well, either, declining over 12.25% on the day.

Mallinckrodt had brought a lawsuit against Praxair Inc. when the letter attempted to release a generic version of Inomax. But the presiding judge ruled that Praxair’s version did not infringe on any of the patents.

Mallinckrodt said it would appeal the ruling.

Inomax makes up a hefty share of the company’s revenue stream.

Meanwhile, in the distressed preferred stock space, Fannie Mae and Freddie Mac preferreds were in retreat on chatter that housing finance reform would be taking a backseat to other issues now that Congress is back in session.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) slipped 4 cents to $6.46. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) lost a dime, or 1.59%, to close at $6.20.

Despite promises that housing and GSE reform would be done by the end of the year, market commentators are now suggesting that it will once again be pushed out. Instead, Congress will be focused on budget issues – including raising the debt limit – and tax reform.

© 2015 Prospect News.
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