Distressed trading quiet ahead of holiday; Cal Res, Valeant active, Cobalt converts shed points

By Paul Deckelman

New York, Dec. 21 – Trading in the market for distressed debt as well as the bonds and notes of merely underperforming companies and sectors continued along in a quiet vein on Thursday, in line with a generally dull and featureless overall high-yield bond market.

Activity levels were off on the last full session before the Christmas holiday break. The Securities Industry and Financial Markets Association has recommended an early close in the U.S. debt markets on Friday ahead of the full market shutdown slated for this coming Monday.

One of the few names seen moving around on any kind of real volume was energy sector bellwether credit California Resources Corp.’s 2022 notes, seen topping the day’s Most Actives list while finishing up modestly on the day. Global crude oil prices meantime continued their recent surge.

Valeant Pharmaceuticals International, Inc.’s recently priced eight-year offering was better in relatively busy trading. The company’s other bonds – particularly its existing eight-year notes – were better across the drug maker’s capital structure.

Elsewhere, telecom provider Frontier Communications Corp.’s most actively traded bonds were seen mixed on the day.

Firearms manufacturer Remington Outdoor Co. Inc.’s bonds were softer following a Moody’s Investors Service downgrade.

For a second consecutive session, Cobalt International Energy Inc.’s convertible notes were a major name in that market, coming down from the big gains that its paper had notched on Wednesday after a $500 million settlement for the bankrupt oil and natural gas company’s Angola interests was announced.

Cal Res climbs

One of the few legitimately busy names was Los Angeles-based oil and natural gas exploration and production company California Resources’ energy sector benchmark credit, its 8% second lien senior secured notes due 2022.

A market source quoted those notes up 3/16 point on the day, ending at around 78 11/16 bid, with over $30 million traded.

A trader who saw the notes at 78 5/8 bid, calling that a 1/8 point gain, opined: “I would have thought that they would be up higher.”

The notes rose against a backdrop of firmer crude oil prices.

Key domestic grade West Texas Intermediate for February delivery gained 27 cents per barrel in New York Mercantile Exchange dealings, settling at $58.36, its third straight rise, while global grade Brent North Sea crude for February delivery gained 34 cents per barrel in London dealings, ending at $64.90, its fourth successive gain.

Valeant paper pops

Valeant Pharmaceuticals International’s 9% notes due 2025 were “pretty active too,” a trader said, with over $13 million of that paper changing hands.

It finished at 104 5/8 bid, up 3/8 point on the session.

The Laval, Que.-based drug manufacturer priced $1.5 billion of those notes at 98.611 on Dec. 4, yielding 9¼%, after that quick-to-market issue was upsized from an originally planned $1 billion.

From that discount pricing, the bonds quickly moved up to around the par level and continued to gradually strengthen above that, taking the issue up to around its current levels.

Valeant’s existing paper was meantime also better across its capital structure.

The company’s 6 1/8% notes due 2025 were the big winner on the day, up more than 1 1/8 points to end at an even 92 bid on more than $19 million of turnover.

Its 5 7/8% notes due 2023 gained more than 1 point to end at 93¼ bid, though volume was only around

$4 million.

Tenet trades up

Elsewhere in the healthcare space, Dallas-based hospital operator Tenet Healthcare Corp.’s 6% notes due 2020 were seen by a trader up ¼ point at 106 bid, its paper still enjoying the momentum from gains earlier in the week on the news that it plans to

sell its Conifer Health Solutions debt-collection business.

Tenet – dealing with debt north of $12 billion – also said that it plans to increase its cost cutting efforts by another $100 million, bringing to $250 million the amount of such savings it hopes to book by the end of the year.

Tenet said in its Tuesday announcement that that it is continuing to take “aggressive actions” to improve its financial performance, accelerate growth and eliminate unnecessary costs.

Frontier notes mixed

Away from the healthcare realm, traders saw mixed performance Thursday from Stamford, Conn.-based wireline telecom operator Frontier Communications’ notes.

A trader saw its widely traded 11% notes due 2025 moving up to 74¾ bid, a gain of ¾ point on the day, with over $16 million having changed hands.

But its 10½% notes due 2022 retreated to 76 bid, falling 3/8 point, with over $10 million of volume.

A trader said the latter bonds had actually been up most of the day, hitting a peak level of 77 3/8 bid, before being dragged lower by a single large transaction later in the day.

Remington in retreat

Elsewhere, the bonds of Remington Outdoor traded down on Thursday after Moody’s Investors Service notched the company’s corporate family credit rating to Caa3 from Caa2.

A trader saw the Madison, N.C.-based firearms manufacturer’s FGI Operating Co. LLC/FGI Finance, Inc. (Freedom Group Inc.) 7 7/8% senior secured notes due May 2020 ending at just under 23 bid, down slightly on the session, with about $7 million having traded.

He noted: “I almost never see those” trading around on a day-to-day basis.

Earlier in the day, a trader at another shop saw the bonds fall to around 22 bid, calling them “a couple of points weaker on the day” versus recent levels, after having taken a substantial tumble in late November.

In its downgrade announcement, Moody’s expressed concern with Remington’s weak operating performance, liquidity pressure from approaching maturities and the view that the company’s capital structure is unsustainable.

Ratings are also constrained by the longer-term threat of increased gun regulations, Moody’s said – even though, paradoxically, the possibility of more gun regulations spurs firearms sales, helping swell revenues of gun manufacturing companies and retail sales outlets.

Cobalt activity continues

In the convertibles market, Cobalt International Energy continued to dominate trading on Thursday with the company’s 2.625% notes and 3.125% notes losing strength throughout the session.

Both issues of convertible notes languished in the 11 to 12 range prior to Wednesday, when the company announced it would receive $500 million for its interests in Angola.

The bankrupt Houston-based oil and natural gas company’s major assets were its interests in Angola and the Gulf of Mexico.

Both notes rose some 20 points on that news to trade in the 30s during Wednesday’s session before solidifying in the 25 range. The 2.625% notes traded between 22 and 26 before closing Thursday’s session at 23.625, according to Trace data.

Its 3.125% notes traded in a range of 20.315 to 26 before closing the session at 24, according to Trace data.

The notes are actively changing hands in the run up to the distribution of assets from Cobalt’s bankruptcy.

With the figure from the Angola property known, holders are now looking towards the amount Cobalt’s Gulf of Mexico property is worth to determine what they will receive from the bankruptcy, a market source said.

-Abigail W. Adams contributed to this review

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