Exela pushed into distressed territory; L Brands rises after earnings report

By James McCandless

San Antonio, May 23 – The distressed space saw a broad decline in Thursday trading with bright spots sprinkled here and there.

Exela Intermediate LLC, a subsidiary of Exela Technologies Inc., saw its notes fall into distressed territory on the heels of a ratings downgrade.

In retail, L Brands, Inc.’s issues were on the rise after the release of its first-quarter earnings report.

Sector peer PetSmart, Inc.’s paper finished mixed.

In the energy space, Ensco Rowan plc’s notes took a dive after the company announced that it was suspending quarterly dividends.

Meanwhile, California Resources Corp.’s and Chaparral Energy Inc.’s issues mirrored sharp drops seen in oil futures as Halcon Resources Corp.’s paper improved.

Elsewhere, Mallinckrodt plc’s notes were mixed as it endures a week of negative attention.

Teva Pharmaceutical Industries Ltd., another drugmaker, saw its issues decline.

Exela falls

Exela’s notes were falling into distressed territory for the first time, traders said.

The 10% notes due 2023 dropped 7½ points to close at 83 bid.

The notes saw $32 million trading by the end of the session.

On Wednesday, the subsidiary of the Irving, Texas-based business software company received a ratings downgrade from Moody’s Investors Service.

The agency lowered its corporate family rating and issue-level ratings while affirming a negative outlook.

The downgrades were in response to the company’s first-quarter earnings results which showed declining revenues and growing restructuring charges.

At the beginning of May, the 10% notes were trading at par before the earnings report sent it under and the downgrade compounded the pressure.

“It’s such a rapid decline,” a trader said. “But this happens a lot to companies that are slow to adapt to whatever the competition is doing. Exela has fallen behind and needs to catch up quick or more people will jump on it.”

L Brands rises, PetSmart mixed

Elsewhere, in retail, L Brands’ issues were on the rise, market sources said.

The 6¾% notes due 2036 added 2¼ points to close at 85¼ bid. The 5¼% notes due 2028 picked up ¼ point to close at 88½ bid.

Late Wednesday, the Columbus, Ohio-based retailer released its first-quarter earnings report.

The company surpassed analyst expectations of breaking even in the quarter, instead posting a 14 cents per share profit.

Net sales were reported at about $2.6 billion.

The surprise profit was mainly due to the 15% boost in sales in its Bath & Body Works segment at $870.7 million.

Its Victoria’s Secret arm was still struggling, showing a 5% drop in sales for the quarter.

Phoenix-based pet supplies retailer PetSmart’s paper ended mixed.

The 8 7/8% paper due 2025 gained ½ point to close at 88½ bid. The 5 7/8% paper due 2025, while being pushed down to 91½ bid during the day, closed level at 92 bid.

Ensco Rowan dives

In the energy space, Ensco Rowan’s notes took a dive, traders said.

The 5.2% notes due 2025 shed 5 points to close at 69½ bid. The 7¾% notes due 2026 declined by 3 points to close at 75¾ bid.

After the close on Wednesday, the London-based contract driller announced that it would be suspending its quarterly cash dividends.

Before Ensco and Rowan merged in April, Ensco holders received a quarterly cash dividend of 1 cent per share while Rowan holders did not receive a dividend.

“This seems like a natural step,” a trader said. “They’ve got a $5 billion debt problem to tackle.”

Energy slumps

Elsewhere in oil and gas, distressed energy tranches trended downward with oil futures, market sources said.

Los Angeles-based independent oil and gas producer California Resources’ issues, a sector bellwether, led the decline.

The 8% notes due 2022 fell 2½ points to close at 74 bid.

Oklahoma City, Okla.-based sector peer Chaparral Energy’s paper was also negative.

The 8¾% paper due 2023 lost 1¾ points to close at 60 bid.

Houston-based producer Halcon Resources’ notes went against the grain.

The 6¾% notes due 2025 added ¼ point to close at 45¾ bid.

West Texas Intermediate crude oil futures for July delivery dropped $3.51, ending the day at $57.91 per barrel.

North Sea Brent crude oil futures for July delivery finished the day at $67.76 per barrel after a sharp $3.23 loss.

Mallinckrodt mixed, Teva off

In the drug sector, Mallinckrodt’s issues ended the day mixed, traders said.

The 5¾% notes due 2022 took off 3½ points to close at 80 bid. The 5½% notes due 2025 gained ¼ point to close at 66¼ bid.

The Staines-upon-Thames, England-based pharmaceutical company has faced a string of negative headlines this week after it announced on Monday that it has filed a lawsuit against the United States federal government.

The company is hoping to stop a regulatory change that would force it to pay back up to $600 million in Medicare rebates and threatens a 10% reduction in rebates in the future for its Acthar Gel drug.

Petach Tikva, Israel-based generic drug name Teva’s paper was losing.

The 3.15% paper due 2026 dropped 1¼ points to close at 79¾ bid. The 4.1% paper due 2046 lost ¼ point to close at 69 bid.

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