Pharma names improve on settlement news; Rite Aid declines after ratings downgrade

By James McCandless

San Antonio, Oct. 16 – The Wednesday session in the distressed market saw much of the attention shift to the pharmaceutical sector.

News of more settlements in the pharma industry spurred gains for Mallinckrodt plc’s, Teva Pharmaceutical Industries Ltd.’s and Endo International plc’s notes.

In retail, Rite Aid Corp.’s notes responded in a mixed fashion after a ratings agency likened the company’s tender offer to a distressed exchange.

Propane name Ferrellgas Partners LP’s paper trailed after releasing a disappointing fourth-quarter earnings report.

A positive day in oil futures spurred similar trends for Superior Energy Services, Inc.’s and McDermott International, Inc.’s notes as Whiting Petroleum Corp.’s issues slid.

Meanwhile, WeWork Cos. Inc.’s paper rose, bouncing from recent lows as the company searches for new financing.

Pharma names gain

Amid more shifting ground in the industry, pharma names like Mallinckrodt’s notes were gaining, traders said.

The 5.5% senior notes due 2025 added ¾ point to close at 31½ bid. The 5¾% senior notes due 2022 rose ½ point to close at 38 bid.

The Staines-upon-Thames, England-based drugmaker’s two tranches combined to see about $49 million trading by the end of the day.

On Wednesday, industry peer Johnson & Johnson announced that it is offering $4 billion to settle all opioid-related claims against the company.

At the same time, three drug distributors are planning to propose a settlement of up to $50 billion.

A number of drug makers are exploring ways to either propose their own blanket settlements against varying claims or take part in Purdue Pharma’s active case.

“Anything they can do to mitigate the damage will be seen as a win in the market’s eyes,” a trader said.

Also on Wednesday, Petach Tikva, Israel-based generic producer Teva offered to donate $15 billion in generic drugs over a 10-year period as part of a potential settlement package.

Its 2.2% senior notes due 2021 gained ¾ point to close at 94 bid. The 6¾% senior notes due 2028 also improved by ¾ point to close at 88 bid.

Dublin-based sector peer Endo’s paper was also lifted.

The 6% senior paper due 2023 shot up 3½ points to close at 64½ bid. The 6% senior notes due 2025 tacked on ¼ point to close at 60¾ bid.

Rite Aid varies

Elsewhere, in retail, Rite Aid’s notes moved in different directions, market sources said.

The 6 1/8% senior notes due 2023 shaved off ¼ point to close at 84 bid. The 7.7% senior debentures due 2027 picked up 1¼ points to close at 61¾ bid.

The 6 1/8% notes saw about $22 million changing hands.

S&P Global Ratings issued a downgrade for the Camp Hill, Pa.-based drug store chain on Wednesday.

The agency lowered the issue-level ratings on Rite Aid’s 2027 and 2028 unsecured notes following an $84 million buyback and a cash tender for up $100 million of the total principal.

S&P said that since the moves were done at a discount, it is considered “a distressed exchange and tantamount to a default” in S&P’s view.

The company announced the tender offer on Tuesday.

Ferrellgas trails

Propane name Ferrellgas’ issues trailed through the day, traders said.

The 6¾% senior notes due 2023 dropped 1 point to close at 83½ bid. The 6¾% senior notes due 2022 shed ½ point to close at 83¼ bid.

After the close on Tuesday, the Overland Park, Kan.-based propane company put out its fourth-quarter earnings report, showing a worse-than-expected loss.

The company showed a loss of 72 cents per share, higher than the 64 cents per share loss that analysts had expected.

Total revenues were reported at $279.1 million, 19.6% lower than the same period last year.

The company also told the Securities and Exchange Commission on Tuesday that it has doubts about its ability to handle $357 million in debt maturing in 2020.

To grapple with it, the company has hired Moelis & Co. as a financial adviser.

Oil trends positive

A positive day for oil futures spurred a positive trend for distressed energy names, market sources said.

Crude oil futures improved as the market saw signals from OPEC that it would continue to tighten supply.

West Texas Intermediate crude oil futures for November delivery added 55 cents to settle the day at $53.36 per barrel.

North Sea Brent crude oil futures for December delivery finished at $59.42 per barrel after a 68 cent gain.

Houston-based oilfield services provider Superior Energy’s paper also trended higher.

The 7 1/8% senior notes due 2021 rose 1¾ points to close at 73¾ bid. The 7¾% senior notes due 2024 improved by 1½ points to close at 55¾ bid.

Houston-based oil and gas engineering name McDermott’s notes gained ground.

The 10 5/8% senior notes due 2024 added 2¾ points to close at 26¾ bid.

Denver-based independent oil and gas producer Whiting’s issues slid lower.

The 6¼% senior notes due 2023 dipped ½ point to close at 76½ bid. The 6 5/8% senior notes due 2026 fell ½ point to close at 66¼ bid.

WeWork rises

Meanwhile, WeWork’s paper bounced off of recent lows, traders said.

The 7 7/8% senior notes due 2025 improved by 2¼ points to close at 82¾ bid.

The New York-based coworking company’s paper has risen from recent lows as it seeks a new round of financing after a botched valuation and initial public offering process led to a leadership change and a company-wide reduction in operations and, potentially, staff.

Large backer Softbank and JPMorgan are both preparing funding packages for the company, which is expected to run out of money by the end of November.

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