Uncertainty surrounding the fate of PacifiCare Health System's $700 million credit last week created an eyebrow-raising 25-point quote range for the name as holders of the paper talked it up and potential buyers in distressed land did their best to knock it down. AgentBank of America last week was talking to the company's existing lenders to rework the $700 million credit, which was to be taken out by a $1.5 billion refinancing package. That plan was scrapped two weeks ago.
The back and forth on the refinancing had interested parties quoting the paper from par down to distressed levels. Distressed dealers said levels had notched down to the 75-85 range. One dealer holding the paper said it had held tight in the near 100. Another par dealer, hearing quotes as low as 75 and as high as close to 100, laughed at the 25-point range. "I would take the mid-point. If I had to cuff it, I'd put it at 80-90," he said. He said anyone saying it's near par is holding the paper while anyone talking down the levels is a distressed dealer looking to snatch it up. He explained that the bid-offer spread is so broad because of mixed opinions in the market. "There's a lot of uncertainty about the name right now, but at the same time, people aren't throwing in the towel," he explained. "It's a question of what is the bank group going to negotiate from the company, so there's sort of a Mexican stand-off."
A spokeswoman for the company's investor relations department says the company is pursuing an extension for when the company has to pay back the remainder of its existing $700 million deal. "It's one of the alternatives we're looking at," she said, declining to elaborate on the status. She called any speculation of a Chapter 11 bankruptcy filing "way overblown. We're profitable; we have $130 million in free cash on hand," she said. "We're in a turnaround process that could take a couple of years."
The credit traded at 85-87 close to two months ago, before the refinancing deal was on the table. During the refinancing, quotes hit as high as 95, but there were no trades, according to dealers. "The person who got in at 85 is not taking a complete bath; he had an upside and it's possible he did recognize it," a dealer said.
Even with the cancellation of the refinancing, holders don't view the existing credit as a disaster, but are waiting until the market gets more educated on the company's standing. "There's very little dealer capital, so they must wait until the buyside is educated and its interest is up," a market player explained. In late July, Moody's Investors Service downgraded the company's debt to B2 from B1 following the discontinuation of the company's financing.