Arch Coal, sector gets a 'bounce'; Caesars mixed ahead of earnings; Toys 'R' Us bonds in decline

By Stephanie N. Rotondo

Phoenix, May 5 - The distressed debt market was keyed in to the coal space Monday, resulting in a sector-wide "bounce," according to a trader.

Spurring the rally was a Wall Street Journal article that came out Sunday, he said. In the article, Arch Coal Inc.'s 7% notes due 2019 were cited specifically as being perhaps a better play for investors than stock.

The article also touched on the fate of coal prices, opining that the recent cold winter - and subsequent supply burn - could help to increase demand, while rising gas prices could keep coal competitive.

Meanwhile, Caesars Entertainment Corp. was trading mixed. The company reports earnings on Wednesday and while some are expecting to see a narrower loss, others are speculating that a restructuring in inevitable.

Among other distressed names, NII Holdings Inc.'s 7 5/8% notes due 2021 were seen off half a point at 281/2.

The Reston, Va.-based provider of Nextel mobile phone service in Latin America and Mexico is slated to release quarterly results on May 12.

Energy Future Holdings Corp. debt was on the mixed side, as a trader saw the 10½% notes due 2016 held in around 7½ and the 15% notes due 2021 rose half a point to 29.

The Dallas-based power producer filed for bankruptcy protections last week.

Arch notes given a nod

Arch Coal's 7% notes due 2019 led the way in a sector-wide bounce on Monday.

The notes were noted specifically in an article published Sunday in the Wall Street Journal. According to the article, investors might be better off with the 7% notes, given that at current prices, the yield-to-maturity was over 13%.

The bonds pushed up 1½ points in Monday trading to 79, according to a trader, who also noted that the security was the most active of the structure.

Among the company's other issues, the 9 7/8% notes due 2019 put on half a point to close around 861/2, while the 7¼% notes due 2020 gained nearly a point to 771/4.

The 7¼% notes due 2021 were over half a point better at 761/2.

As for Alpha Natural Resources Inc.'s debt, it was also mostly better.

A trader called the 6% notes due 2019 "up around 3 points" at 79. He noted that the issue had not traded in about a week.

The 6¼% notes due 2021 were meantime unchanged at 76½ and the 9¾% notes due 2018 were up almost 1½ points to 96 1/8.

Walter Energy Inc.'s 9 7/8% notes due 2020 closed up over 1½ points at 67 1/8.

The Journal article also referred to the current price struggles within the coal industry. Due to oversupply, coal prices have dropped to staggering lows. This has resulted in most producers cutting their production targets. Some have also had to impose cost-cutting measures, such as idlements and layoffs.

But this year's cold winter literally burned through a large chunk of supply, the article said. That could result in increased demand in the not-so-distant-future.

And, with gas prices on the rise, coal becomes a more attractive option to power producers.

For its part, Arch Coal is well positioned to weather the storm. The article said that it is believed the company has at least four to five years of liquidity it could burn through and no maturities to contend with until 2018.

Caesars restructuring 'inevitable'

A trader saw Caesars Entertainment's debt finishing the session mixed.

He said the 8½% notes due 2020 closed at 86, down half a point. But the 10% notes due 2018 were up a quarter-point at 451/4.

The Las Vegas-based hotel and casino operator will release earnings on Wednesday. According to Zacks Estimates, analysts are forecasting a narrower loss of $1.15 per share.

That would compare to a loss of $1.41 per share the previous year.

Revenue is also expected to be at least modestly higher around $2.17 billion.

But even as some are expressing optimism about the company's prospects, others are no so sure.

In a report out Monday, Moody's Investors Services' Peggy Holloway, vice president, senior credit officer and the lead Caesars analyst, said that there is no way to avoid a restructuring.

"An eventual restructuring at Caesars is inevitable, considering its weak liquidity and very high leverage," she wrote in the report. "Even if Caesars were to use all asset-sale proceeds to repay debt at 50 cents on the dollar, total debt/EBITDA would remain unsustainable at 14 times and EBITDA would still not cover interest and capital spending needs."

Holloway also opined that the company has just enough liquidity to get through 2015, "at best."

No play time for Toy

Toys 'R' Us Corp.'s debt was on the decline on Monday, though there was no fresh news to act as a catalyst.

A trader said the 7 3/8% notes due 2018 fell over 3 points to 683/4. The 10 3/8% notes due 2017 dropped 2½ points to 78 and the 8½% notes due 2017 lost a point to finish around 101, he said.

Another market source pegged the 7 3/8% notes at 68¾ bid, down 3 points.

Toys 'R' Us is a Wayne, N.J.-based toy retailer.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.