PJM auction causes downturn for power producers Talen, GenOn; Neiman Marcus higher on M&A rumors

By Colin Hanner

Chicago, May 24 – Several issuers in the distressed debt market on Wednesday reflected the results of the PJM Interconnection Capacity Auction held a day prior, a market source said, with energy producers falling across the board.

Dynegy Inc., which, on Friday was whispered to be the target of an acquisition by Vistra Energy Corp., was affected more by the results of the auction, which showed that power reserve margins were higher than the target, a benefit for consumers on the behalf of producers.

Also lower were Talen Energy Corp. and GenOn Energy Inc., which was Tuesday’s volume and movement leader.

Dallas-based retailer Neiman Marcus Group, Inc. saw intraday gains of several points after a New York Post article reported that Related Cos., a New York real estate company, had met with Neiman Marcus to discuss, among other things, a possible partnership and acquisition.

Bonds pared after reaching highs midday, but were still higher on the day.

Distressed exploration and production companies were higher as crude oil moved lower, and Intelsat SA’s subsidiaries were fractionally higher on the session.

PJM auction stirs downward movement

PJM Interconnection, a power market that contains 13 states, brought together companies on Tuesday to find the need for consumers’ needs in 2020, a news release said.

The results from the auction were “lower than people’s expectations,” a market source said. “It’s out [three years from now], but it’s going to have a negative effect.”

The auction settled a price of $76.53/megawatt-day for resources in the PJM territory, a news release said, adding that the procured capacity provided a 23.3% reserve margin, several points above its target.

The reserve margin drove home that there is capacity for electricity where there is not demand.

After the close and following the PJM results, Dynegy traded down a few points, a market source said, with the 7 5/8% notes due 2024 trading down to 92.

“As [issuers] digested their own internal results from the auction, they sort of bounced back a little bit,” a market source said, referring to Dynegy in particular.

Those notes, day-over-day, were unchanged at 96.

“What they gave back at the end of the PJM results, they got back this morning,” the source said.

Talen Energy’s 6½% notes due 2025 were down 2½ points to 74¼ on the session.

GenOn’s 9½% notes due 2018 were down 4¼ points to 73¾, and its 9 7/8% notes due 2020 were down 3 points to 74.

The Houston-based power producer was significantly higher on Tuesday following the approval of a new restructuring agreement, but may have also pared some of those gains due to profit taking, a market source said.

Neiman up after M&A rumor

In the continuing saga that is Neiman Marcus’ next step to avoid the downfall of other traditional retailers in recent times, the New York Post reported that Related Cos. was in discussions to potentially invest in the company, with the chance of becoming a partner in the company.

Neiman’s 8% notes due 2021 were up 4 points to the mid-50s during intraday trading before dropping to 53, still a 2-point gain on the session.

According to the Post, Neiman will be the anchor tenant for Related Cos.’ Hudson Yards complex in Manhattan that is slated to open in 2018.

In early May, the Post reported that discussions between Hudson’s Bay Co. and Neiman Marcus had hit a roadblock.

E&P climb on oil’s fall

With crude oil futures taking a reprieve on the day – settling a few cents lower to just under $51.50 – distressed names climbed.

Canadian oil sands company MEG Energy Corp.’s 7% notes due 2024 were up 2 points to 91, a market source said, while Denbury Resources Inc.’s 6 3/8% notes due 2021 were up ¾ point to 78.

California Resources Corp.’s 8% notes due 2022 were up ½ point to 79.

On Thursday, Organization of Petroleum Exporting Countries will meet in Vienna to discuss elongating supply cuts into early next year, a deal that is signaled to have support from many countries, including Saudi Arabia.

Intelsat trades higher

Seeing a significantly higher volume on the day, Intelsat was also climbing higher, a market source said.

Intelsat Jackson Holdings SA’s 7¼% notes due 2020 were ½ point higher at 92½ with more than 6 million exchanging hands.

Intelsat Luxembourg Holdings SA’s 7¾% notes due 2021 were up ¼ point to 57¾.

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