Petsmart higher after Friday drop; Community Health, Valeant unresponsive to earnings, debt reduction

By Colin Hanner

Chicago, May 1 – Activity in the distressed debt market was less active than that of the high-yield market on Monday, market sources said, with pet retailer Petsmart, Inc. the most active issue in the space.

The issue rebounded by a round number, ticking closer to a mid-90s handle, traders said.

In the health care and pharmaceutical sphere, Community Health Systems, Inc. and Valeant Pharmaceuticals International, Inc. traded as headlines swirled around both companies.

For Franklin, Tenn.-based Community Health, bonds traded higher ahead of earnings, which came out after the closing bell on Monday. Valeant announced it reduced its senior secured terms loans by roughly an additional $220 million, though that did little to affect its most-traded bond’s movement.

California Resources Corp. topped energy’s most-active list, closing a full point lower on the session.

Elsewhere, several idiosyncratic names in the distressed space traded, though movement was tight, traders said.

Retail rebounding

Teetering since its acquisition of online pet retailer, Chewy, Inc., Petsmart saw a full-point gain on Monday.

Its 7 1/8% notes due 2023 were up 1 point to 92½, a trader said, while another trader said the notes were up 1½ points to 93. On Friday, they had finished with a 91 handle.

Elsewhere in retail, York, Pa.-based Bon-Ton Stores, Inc.’s 8% notes due 2021 were up 1/8 point to 41 1/8, a trader said. On Friday, the notes were quoted around a 40 bid mark.

In health and pharma

Ahead of earnings, Community Health’s 6 7/8% notes due 2022 were down 1/8 point to 82 7/8, a market source said.

According to a late afternoon press release from the company, Community Health announced net operating revenue of $4.49 billion and earnings per share of 8 cents, beating market expectations by both accounts.

Loss from continuing operations was $199 million, compared to net income of $11 million during the same period last year. Year-over-year revenue decreased by 10.3%.

Chief executive officer Wayne T. Smith said the company is “making progress with our portfolio rationalization strategy as we work to create a stronger, more sustainable company for the future and further reduce our debt,” according to a press release.

In a similar fashion, Valeant reduced its debt by roughly $220 million on Monday, a press release said. The paydown follows the earlier-than-expected closing of the sale of three skincare brands to L’Oreal and the closing of the divestiture of a manufacturing facility in Brazil, Valeant said.

Its 5 7/8% notes due 2023 were unchanged at 74¼, a trader said.

“There was not a lot of reaction to that,” a trader said. “It would’ve been a bigger disaster if they couldn’t reduce or make the asset sale, and it seems like it’s something that’s been priced into the market already.”

Also unchanged were Tenet Healthcare Corp.’s 6¾% notes due 2023, which finished at 95 7/8.

Energy down

Continuing to tick lower in tandem with sinking oil prices, California Resources’ 8% notes due 2022 were down 1 point to 76, traders said.

Offshore drilling contractor Ensco plc’s 5¾% notes due 2044 were down ½ point to 72¾, and its 5.20% notes due 2025 were unchanged at 84½, a trader said.

And oil and natural gas producer EP Energy Corp.’s 8% notes due 2025 were down ½ point to 89.

Distressed roundup

Resolute Forest Products’ 5 7/8% notes due 2023 were up ¾ point to 96½, an “active” issue as of late, a trader said. Early last week, the bonds had retreated on news that the United States plans to slap a hefty tariff on imports of Canadian lumber over Canada’s alleged unfair subsidization of those wood producers.

The bonds were quoted with a 95 handle on Friday.

Hertz Global Holdings, Inc.’s 5 7/8% notes due 2020 were down 1¾ points to 91¾ on “pretty active” volume, a trader said.

Tali Rackner and Paul Deckelman contributed to this review

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