Avaya files for Chapter 11, surges; Paragon falters on reorganization agreement; Mallinckrodt rebounds

By Colin Hanner

Chicago, Jan. 19 – Several distressed names saw some uncharacteristically wide movement on Thursday, spurred mostly by company-specific announcements driving activity.

Most notably, telecommunication and technology company Avaya Inc. filed for Chapter 11 bankruptcy protection and released its fourth quarter results on Thursday, prompting a surge in several of the day’s most active issues.

Late Wednesday, offshore driller Paragon Offshore plc announced it had reached an agreement in principle for a new plan of reorganization with two committees that hold two terms of debt, leading to a sudden drop off in one of its securities.

Fellow offshore driller Transocean Ltd. followed with losses of its own, though Pacific Drilling saw quite the opposite from the previous two with modest gains coming in two sets of notes.

One of Mallinckrodt Pharmaceuticals’ notes surged a day after the England-based company paid out a settlement to the Federal Trade Commission on claims of price-gouging in one of its drugs.

Traditional retailers continued to find trouble on the session, including Neiman Marcus Group, Inc. and Claire’s Stores, Inc.

And hospital operator Community Health Systems, Inc. and pharmaceutical company Endo Finance Co. were down on the session.

Avaya’s ‘file and rebound’

Speculation that swirled around Avaya Inc. for months about a possible bankruptcy culminated in the telecommunications company filing for Chapter 11 bankruptcy on Thursday, leading to a surge in its distressed securities.

The 7% notes due 2019 traded 70 times, a trader said, and were up 1 point to 84¾. Another trader had the notes closer to 85.

Though not trading nearly as much, the 9% notes due 2019 were up 2 3/8 points to 86 1/8.

And the 10½% notes due 2021, which swung down on Wednesday 4 to 5 points, were up 7 points to 23 Thursday.

“They file and rebound,” a trader said.

“Avaya’s current capital structure is over 10 years old and was put in place to support our business model as a hardware-focused company, which has evolved significantly since that time,” said Kevin Kennedy, Avaya’s chief executive officer, in a press release. “Now, as a result of the terms of Avaya’s debt obligations and the upcoming debt maturities, we need to recapitalize the company.”

The telecommunications company has $725 million debtor-in-possession financing committed by Citibank Inc.

Avaya also announced quarterly earnings on Thursday, reporting total revenue of $958 million for the fourth quarter, a decrease of $50 million year-over-year, amid lower demand for hardware, the company said. Net loss for the company was $505 million during the same period, a $429-million increase from the $76 million net loss reported during the same period in 2015.

Paragon weakens with agreement

On Wednesday, Paragon Offshore plc reached an agreement in principle with an informal committee holding secured debt under its senior secured term loan maturing in July 2021 and a steering committee holding a majority of the secured debt under its senior secured revolving credit facility maturing in July 2019 on a term sheet for a new plan of reorganization, according to a company news release.

Paragon said holders of its 6¾% senior unsecured notes due July 2022 and 7¼% senior unsecured notes due August 2024 are not party to the term sheet, but the company is in discussions with the bondholders regarding the terms of a new Chapter 11 plan.

Its securities felt the brunt of the news, particularly the 6¾% notes due 2022, which were down 4 points to 14¾, a trader said.

Paragon’s stock fell 19 cents, or 73.2%, to 7 cents.

According to the release, Paragon expects to emerge from the Chapter 11 process as soon as possible in the first half of 2017 with roughly $190 million of cash on hand, providing adequate liquidity for its revised, more focused business plan.

Drillers mixed

A series of other offshore drillers also saw some mixed movement on Thursday, including Transocean’s 6.8% notes due 2038, which were down ¾ point to 79½, a trader said.

Pacific Drilling’s 7¼% notes due 2017 were up 1½ points to 49 1/8, a trader said, while its 5 3/8% notes due 2020 were up ½ point to 41.

Mallinckrodt up after settlement

As previously reported by Prospect News, Mallinckrodt Pharmaceuticals made a $100 million settlement with the FTC on Wednesday over claims that the company artificially increased prices of one of its drugs by purchasing a rival drug, thereby creating a monopoly for the treatment.

After dropping by several points in a swath of securities last session, there was a different tone on Thursday, as the 5 5/8% notes due 2023 were up 3 points to 88½, a trader said.

Retailers weaken

Brick-and-mortar retailers are continuing to feel the lack of confidence in their business model growing against them.

A market source characterized retailer Neiman Marcus Group’s movement during morning trading as “volatile” with wide margins summing up trading activity.

The 8% notes due 2021 finished the day down 1¼ points to 66 5/8, the source said.

Tween accessory retailer Claire’s Stores’ 9% notes due 2019 were down ¾ point to around a 49 handle, a trader said.

Healthcare, pharma down

Community Health Systems, Inc.’s 8% notes due 2019 were down ¾ point to 85¾, a trader said.

Endo Finance Co. (Endo Pharmaceuticals plc) saw a 2-point decrease in its 5 3/8% notes due 2023, which finished with an 82 5/8 handle, a trader said.

Idiosyncratic movers

In the energy and production sector, California Resources Corp.’s 8% notes due 2022 were unchanged with an 88 handle, a trader said.

A market source said Denbury Resources Corp.’s 6 3/8% notes due 2021 were down 1 point to 91½.

Media and entertainment company iHeartCommunications, Inc.’s 14% notes due 2021 were up ¼ point to 36¾, a trader said.

And tobacco distributor and seller Alliance One International, Inc.’s 9 7/8% notes due 2021 were down 2 points to 86¾.

Caroline Salls contributed to this review.

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