Distressed Debt Trading Overshadows Corporate Bond Market
September 20 2019 - 2:01PM
Dow Jones News
By Matt Wirz
A sharp rally in the bonds of three distressed companies --
McDermott International Inc., California Resources Corp. and
PG&E Corp. -- dominated trading in the corporate bond market
Friday.
The surge marks a rebound after earlier selloffs in the debt,
showing how volatile trading in riskier bonds has become amid
investor uncertainty about geopolitics, interest rates and economic
growth.
McDermott's 10.625% bond due 2024 more than doubled in price
today and was the most actively traded corporate bond, with about
$245 million face value changing hands, according to MarketAxess.
That, in part, reflects the bonds' deeply discounted prices.
An infrastructure contractor for offshore oil and gas producers,
McDermott is one of the growing number of high-yield bond issuers
in the energy industry that are struggling with their debt loads
amid weak oil and gas prices. The company's bonds were already
trading at distressed levels -- around 70 cents on the dollar --
before The Wall Street Journal reported Wednesday that it had hired
restructuring adviser AlixPartners LLP, and by Thursday prices had
plummeted to a low of 16 cents on the dollar.
The bonds partially recovered to 35 cents on the dollar Friday
morning after McDermott announced unsolicited purchase offers for
its Lummus Technology subsidiary, before sliding back to 31 cents
when the Journal reported it had also hired a restructuring law
firm, Kirkland & Ellis.
Exploration and production company California Resources has also
taken bondholders on a roller-coaster ride in recent days. The
firm's 8% bond due 2022 jumped about 15% to 64 cents on the dollar
Monday after attacks on Saudi Arabian production facilities lifted
global oil prices before falling about 25% to 48 cents on the
dollar Thursday, following a media report that the company was also
hiring a restructuring adviser. The debt rebounded to 58 cents on
the dollar Friday after the company denied the report.
Bankrupt California electric utility PG&E Corp. was the
second-most actively traded name in corporate bond markets Friday
after a group of bondholders including Elliott Management Corp.
announced an alliance with victims of wildfires caused by the
company's power lines. The agreement boosted prices of PG&E's
6.05% bond due 2034 to about 113 cents on the dollar from 110 on
Thursday, according to MarketAxess.
U.S. government bond yields dropped Friday morning as U.S.
stocks gained on optimism about the domestic economy. The yield on
the benchmark 10-year Treasury note recently traded at 1.772%, down
from a high of 1.795% in overnight trading and from Thursday's
1.777% close, according to data from Tradeweb. Yields fall as bond
prices rise.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
September 20, 2019 13:46 ET (17:46 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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