U.S. Steel notes lower on acquisition news; Mallinckrodt active in pharmaceutical space

By James McCandless

San Antonio, Oct. 1 – The distressed debt session was focused on newsmakers in the manufacturing and pharma spaces.

United States Steel Corp.’s notes headed lower after the company announced the acquisition of a major stake in Big River Steel.

In pharma, Mallinckrodt plc’s issues varied amid news that the company and other drug makers are seeking to take part in Purdue Pharma’s bankruptcy.

Sector peer Endo International plc’s paper was lifted.

Meanwhile, WeWork Cos. Inc.’s notes gained despite a ratings downgrade, providing a brief respite after a week of losses and negative headlines.

Oil and gas name Valaris plc’s issues declined amid the announcement of new and renewed contracts worth about $245 million.

Another down day for oil futures was met with similar moves from McDermott International, Inc.’s and California Resources Corp.’s paper as Chesapeake Energy Corp.’s notes were mixed.

Telecom name Frontier Communications Corp.’s issues also moved in different directions.

U.S. Steel lower

U.S. Steel’s notes spent the session trending lower, traders said.

The 6¼% senior notes due 2026 fell 1¼ points to close at 83 bid. The 6 7/8% senior notes due 2025 dropped 1¼ points to close at 89¼ bid.

The two tranches combined to see about $33 million change hands.

On Tuesday morning, the Pittsburgh-based steel manufacturer announcing that it was purchasing a $700 million stake in competitor Big River Steel, giving the company a 49.9% stake.

As part of the agreement, there is a call option to purchase the rest of the company within the next four years.

“This gives them the chance to acquire something that seems like a good fit for less than expected,” a trader said.

Big River Steel produces products with a technologically advanced flat-rolled mill in Arkansas, which the company says will provide the opportunity to provide “the best of both worlds” to its consumer base.

Mallinckrodt, Endo eyed

In pharmaceuticals, Mallinckrodt’s issues varied in direction, market sources said.

The 5 5/8% senior notes due 2023 lost 1 point to close at 31 bid. The 5¾% senior notes due 2022 held level at 35 bid.

After the close on Monday, news broke that the Staines-upon-Thames, England-based drug maker and other names in the space are considering using Purdue Pharma’s blanket settlement with all entities suing it to form their own remedies.

“It doesn’t sound so different from what happened with tobacco or asbestos companies,” a trader said. “Settling the thousands of lawsuits one at a time seems less feasible.”

There is also talk of the companies joining the Purdue settlement directly, allowing names to contribute money to a potential trust and reducing the overall burden on individual companies.

Earlier on Monday, Mallinckrodt announced the finalization of a $30 million settlement with Cuyahoga and Summit counties in Ohio.

Dublin-based sector peer Endo, also considering the same scheme, saw its paper lifted higher.

The Par Pharmaceutical Cos. Inc. 7½% senior secured paper due 2027 gained 1 point to close at 92¾ bid.

WeWork gains

Meanwhile, WeWork’s notes were gaining for the first time in a week, traders said.

The 7 7/8% senior notes due 2025 picked up 1¾ points to close at 86¾ bid.

Fitch Ratings issued a downgrade for the New York City-based coworking name on Tuesday.

The agency dropped the company’s overall rating to CCC+ and lowered its senior unsecured notes rating.

The changes reflect what Fitch says is an “uncertain liquidity profile” after the company nixed a planned initial public offering.

“Because there isn’t a lot of information available about things like cash flow, it will be interesting to see how many distressed guys jump on it,” a trader said. “That being said, I think the notes go lower.”

The notes snapped a seven-day trading decline after the company shelved an IPO after a dispute over its valuation.

The flub led to a slew of negative headlines and the resignation of its chief executive officer.

Valaris declines

Oil and gas name Valaris’ issues declined by the close, market sources said.

The 5.2% senior notes due 2025 shed 1¾ points to close at 51¾ bid. The 7¾% senior notes due 2026 also declined by 1¾ points to close at 52¼ bid.

The London-based contract driller announced on Tuesday that it had signed new contracts and extended others worth a total of about $245 million.

A highlight among the projects is a four-well contract with Neptune Energy to provide drilling services in a North Sea project for an undisclosed amount.

Oil futures down

As oil futures moved downward, distressed energy names trended the same way, traders said.

Crude oil futures were under water in reaction to weak U.S. manufacturing data and an output decline from OPEC.

West Texas Intermediate crude oil futures for November delivery fell 45 cents to settle the day at $53.62 per barrel.

North Sea Brent crude oil futures for November delivery ended at $60.75 after a 3 cent loss.

Houston-based oil and gas engineering name McDermott’s paper dipped.

The 10 5/8% senior notes due 2024 slipped 1¼ points to close at 22½ bid.

Los Angeles-based independent oil and gas producer California Resources’ notes shifted lower.

The 6% senior notes due 2024 gave back 1½ points to close at 37½ bid. The 8% senior secured notes due 2022 shaved off ½ point to close at 49 bid.

Oklahoma City-based oil and gas producer Chesapeake Energy’s issues were flat to lower.

The 8% senior notes due 2025 lopped off ½ point to close at 71½ bid. The 8% senior notes due 2027 finished level at 68¾ bid.

Frontier flat to lower

Telecom name Frontier’s paper also traded flat to lower, market sources said.

The 10½% senior notes due 2022 finished level at 46¼ bid. The 11% senior paper due 2025 lost ¾ point to close at 45½ bid.

The Norwalk, Conn.-based wireline communications company is set to issue a restructuring plan to its creditors after weeks of speculation about its next steps in facing its maturity wall.

Worries were somewhat quelled after the company recently committed to paying its latest round of debt payments.

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