PetSmart, Mattel fall again; MEG Energy off on legal claim; new, existing Valeant paper eases

By Paul Deckelman

New York, Dec. 14 – The distressed debt market was lower on Thursday, in line with a generally weaker broader high-yield bond market, according to traders in in the paper of underperforming companies and sectors.

Investors were saying “been there, done that” as the notes and bonds of familiar issuers PetSmart, Inc. and Mattel Inc. continued to move lower for yet another session. Toymaker Mattel, recently downgraded to junk by all three major ratings agencies, was meantime on the verge of pricing a $1 billion issue of eight-year notes.

In the oil and natural gas sphere, MEG Energy Corp.’s paper fell across the board after one of the entities in a long-running legal claim against the company filed an amended claim against MEG, which dismissed the whole issue as frivolous.

On the other hand, EP Energy Corp.’s notes firmed smartly on Thursday as it announced sweetened terms for an ongoing exchange offer for some of its existing bonds that is now under way.

Debt-laden Canadian drugmaker Valeant Pharmaceuticals International Inc.’s recently priced eight-year notes as well as its existing paper were all seen lower.

Mattel loses more ground

With Mattel on the brink of pricing its $1 billion eight-year offering, traders said the El Segundo, Calif.-based toy manufacturer’s existing bonds continued to fall back on Thursday in continued investor response to Monday’s multiple ratings downgrades by all three major agencies. All now consider the formerly investment-grade-rated name to now be a junk bond company.

Mattel “has crept into our world,” a junk trader acknowledged, seeing the company’s 3.15% notes due 2023 down another 1 1/8 point on Thursday, ending at 86½ bid.

That loss comes after similar-sized losses earlier in the week.

The trader said the bonds are down 8 points on the month so far.

More than $8 million traded Thursday.

The company’s 5.45% long bonds due 2041 were seen by a market source to have finished at 81½ bid, with over $19 million having traded.

Those bonds bounced off their day’s low point around 78 bid.

But they were trading well under the lower-90s levels at which they had been seen about a week ago.

PetSmart driven lower

Just as Mattel bonds have been falling all this week, so too has PetSmart’s paper been getting royally pummeled, traders said.

The same was true once again on Thursday, with a trader seeing those notes “off another couple of points. They are really having a tough week.”

He saw the company’s 5 7/8% senior secured notes due 2025 ending at 74 1/8 bid. That was down 1 5/8 points on the day, with over $23 million traded.

Its unsecured notes, he said “were down another 2 or 3 points, with its 7 1/8% notes due 2023 falling back to close at 58½ bid, with over $19 million traded.

Valeant notes active, easier

Valeant Pharmaceuticals’ new 9% notes due 2025 “traded a lot today,” a market source said, with over $29 million moving around.

But he said that those bonds – which have firmed smartly over the past few sessions after their pricing well below par last week – gave up about 1 point of those gains Thursday, finishing at 101 7/8 bid.

A second trader who saw the notes finishing at that same level called it a 7/8 point on the day.

Laval, Que.-based drug manufacturer Valeant had priced $1.5 billion of those notes at 98.611 on Dec. 4, yielding 9 ¼%.

That quick-to-market issue was upsized from an originally announced $1 billion.

Valeant’s existing notes were meantime lower on Thursday in tandem with its new megadeal.

A trader said that the company’s 5½% notes due 2023 lost ¾ point on the day, closing at 89½ bid, while its 7½% notes due 2021 were off by around 5/8 point at 100 15/16 bid. Both of those issues generated about $15 million of trading volume Thursday.

Valeant’s 6 1/8% notes due 2025 finished down 7/8 point at 89 3/8 bid, on volume of over $8 million.

MEG Energy mauled

In the oil and natural gas space, a trader saw MEG Energy’s 7% notes due 2024 down by more than 3 points on the session at 85¾ bid, while “its whole capital structure was down by 2 or 3 points.”

More than $12 million of those notes traded.

He saw MEG’s 6 3/8% notes due 2023 likewise down by more than 2½ points on the day, finishing at 87¼ bid, on volume of more than $28 million.

He said that “the amendment of claims” against the Calgary, Alta.-based oil and natural gas producer “was impacting on its paper.”

On Wednesday, MEG announced that it “is aware of amendments made by Chemtrade Electrochem Inc., the successor entity to Canexus Corporation, to a statement of claim filed by Canexus Corporation in 2014 in relation to legacy issues involving a unit train transloading facility.”

MEG’s announcement went on to say that the company “continues to view this three year old claim, and the recent amendments, as frivolous and without merit and will vigorously defend against all claims being advanced by Chemtrade.”

EP firms amid sweeter offer

EP Energy’s 9 3/8% notes due 2020 rose than 2 points on the day to 81¾ bid, with over $32 million changing hands, the junk market’s top volume name.

The Houston-based oil and gas exploration and production company’s 8% notes due 2025 moved up to 72 bid from round-lot levels around 69 bid earlier in the week. Over $25 million traded.

The company said Thursday that it had extended the early tender deadlines and expiration deadlines on its recently announced offer to exchange new notes for its outstanding 2020, 2022 and 2023 senior notes, and had sweetened the incentive it is offering its existing noteholders to participate in the exchange.

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