PG&E dives as blackouts, wildfires persist; McDermott declines after ratings downgrade

By James McCandless

San Antonio, Oct. 28 – The distressed debt market started a new week focused mainly on utilities and energy movers.

PG&E Corp.’s notes dived after a new round of blackouts and expanding wildfires put more pressure on the name.

Elsewhere, McDermott International, Inc.’s issues lost ground after receiving a ratings downgrade.

Sector peer Diamond Offshore Drilling, Inc.’s paper went negative after reporting a third-quarter earnings loss.

As oil futures fell, Superior Energy Services, Inc.’s notes followed while Whiting Petroleum Corp.’s issues varied.

Meanwhile, United States Steel Corp.’s paper diverged after closing on a new five-year revolving credit facility.

In the pharma space, Teva Pharmaceutical Industries Ltd.’s notes saw mixed movements while Endo International plc’s issues rose.

Coworking name WeWork Cos. Inc.’s notes sustained a rise.

PG&E dives

PG&E’s notes plunged on Monday, traders said.

The 6.05% notes due 2034 dropped 14 points to close at 90½ bid. The 3.3% senior notes due 2027 sank 10½ points to close at 85½ bid.

The San Francisco-based bankrupt electric utility’s structure dove sharply on Monday after a weekend of blackouts for scores of customers and worsening wildfires in parts of California drove the securities downward.

The company started work on Monday to restore power to the millions of customers that it had cut off in a measure to prevent more wildfires.

Despite the effort, a fire north of San Francisco has started to spread and is potentially the company’s fault.

The company told state regulators last week that a transmission tower malfunctioned near the site where the fire originated.

“If this fire is their fault, the shareholders will get nothing,” a trader said of expected recoveries for investors in bankruptcy court. “The stock has been shredded to bits already.”

The company also warned customers on Monday that more blackouts could occur again on Tuesday.

McDermott notes decline

Elsewhere, McDermott’s issues were losing ground, market sources said.

The 10 5/8% senior notes due 2024 shaved off ¼ point to close at 19¼ bid.

On Monday, the Houston-based oil and gas engineering name received a downgrade from S&P Global Ratings.

The agency cut ratings on it and two issue-level ratings, citing the company’s need for capital in the near future despite its recent agreement with secured lenders for up to $1.7 billion in additional financing.

“It’s pretty clear that there’s going to have to be some kind of restructuring at some point next year,” a trader said.

Diamond Offshore down

Sector peer Diamond Offshore’s paper took a negative turn, traders said.

Early Monday, the Houston-based contract driller released its third-quarter earnings results, yielding lukewarm results.

The company reported a loss of 67 cents per share, just shy of the 68 cents per share loss that analysts had expected.

Revenues were higher than predicted at $254.02 million.

Oil futures fall

As oil futures fell, distressed energy tranches trended the same way, market sources said.

West Texas Intermediate crude oil futures for December delivery were pushed down 85 cents to settle at $55.81 per barrel.

North Sea Brent crude oil futures for December delivery ended at $61.57 per barrel after a 45 cent loss.

Houston-based oilfield services provider Superior Energy’s notes moved similarly.

The 7 1/8% senior notes due 2021 fell ¼ point to close at 76¼ bid. The 7¾% senior notes due 2024 slid 1 point to close at 56½ bid.

Denver-based independent oil and gas producer Whiting Petroleum’s issues varied.

The 6¼% senior notes due 2023 tacked on ¼ point to close at 77¼ bid. The 6 5/8% senior notes due 2026 lost ¼ point to close at 68¾ bid.

U.S. Steel diverges

Meanwhile, U.S. Steel’s paper diverged in direction, traders said.

The 6¼% senior paper due 2026 dipped 1¼ points to close at 85¼ bid. The 6.65% senior notes due 2037 added ¼ point to close at 76¾ bid.

After the close on Friday, the Pittsburgh-based steel manufacturer announced that it closed its new $2 billion five-year senior secured asset-based revolving credit facility, Prospect News reported.

The credit agreement holds many of the same terms as its previous $1.5 billion credit facility, except that it will mature in 2024 and has an up to $150 million “first-in, last-out” tranche.

Teva mixed

In the pharma space, Teva’s notes saw mixed movements, market sources said.

The 3.15% senior notes due 2026 held level at 75½ bid. The 2.2% senior notes due 2021 garnered ½ point to close at 95½ bid.

After last week’s announcement that the Petach Tikva, Israel-based generic drug producer had struck a tentative deal to settle all remaining litigation over opioid-related claims, trading has been cautiously optimistic.

“If the deal stands as is, then they are paying pennies to what some think they should be paying,” a trader said. “That’s less risk going forward. But anything could happen before it’s finalized.”

Dublin-based peer Endo’s issues improved.

The Par Pharmaceutical Cos. Inc. 7½% senior secured notes due 2027 inched up ¼ point to close at 95¾ bid. The 6% senior notes due 2023 gained ½ point to close at 66½ bid.

WeWork rises

Startup WeWork’s paper continued to rise, traders said.

The 7 7/8% senior paper due 2025 improved by ½ point to close at 84¾ bid.

The New York-based coworking company’s paper added 1 point on Friday amid the emergence of new details in an $8 billion rescue package from large backer SoftBank.

As part of the deal, new debt will consist of $1.1 billion in senior secured notes, $2.2 billion in unsecured notes and a $1.75 billion letter-of-credit facility.

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