Distressed market recovers ground; Sears debt gains on rights offering; Peabody earnings beat

By Stephanie N. Rotondo

Phoenix, Oct. 20 – Distressed bonds kicked off the week with a firm tone Monday, shrugging off the volatile previous week, which put pressure on the space.

Sears Holdings Corp. “got a boost,” a trader said, on news that the company had launched a $625 million rights offering. The bonds gained some ground as investors perked up about the retailer’s prospects – for the near term, at least.

Meanwhile, Peabody Energy Corp. released quarterly results on Monday. Those bonds were also higher, even as the company reported a wider loss year over year.

Still, the loss per share came in better than company projections.

Though the overall market was on the rise, not all names were benefiting.

Cliffs Natural Resources Inc. was downgraded by Moody’s Investors Service Monday, following Friday’s news that the company was planning a massive write-down.

Sears ends firmer

In an effort to add more cash to its balance sheet, Hoffman Estates, Ill.-based Sears launched a $625 million rights offering on Monday.

The rights offering will give shareholders the right to buy 8% senior notes due 2019 and warrants to buy common stock.

ESL Investments, the hedge fund run by Eddie Lampert, Sears chief executive officer, has already said it would subscribe for its pro rata share, which equals about $303 million.

The company’s 6 5/8% notes due 2018 were “up a couple points,” a trader said, hitting a high of 94.

However, he said the issue came in a touch to finish in a 93 to 93½ context.

“Sears Holdings continues to look for creative ways to obtain funding,” wrote Gimme Credit LLC Evan Mann in an afternoon comment put out Monday. “Although we still believe near term sources of liquidity should be adequate to get the company through this fiscal year, we have been skeptical for a while regarding the company’s longer term credit prospects.”

Peabody higher on earnings

Peabody Energy reported a wider loss in the third quarter as revenue declined.

A trader said the 6¼% notes due 2021 were “by far the most active” of the company’s bonds, which finished the day “better.”

He pegged the issue at 94, up about 3 points.

For the quarter, Peabody’s U.S. mining revenue dropped 2.7% to $1.02 billion, though revenue per ton inched up a touch to $21.24. Australian revenues dropped 4.1% to $676.3 million, which equaled a 13.4% slide in revenue per ton.

Total net loss was $150.6 million, or 56 cents per share. That compared to the previous year’s loss of $26.1 million, or 10 cents per share.

Excluding certain items, loss-per-share was 59 cents.

With or without those items, the loss came in better than the company’s projected 63 cents to 69 cents per share.

Total revenue decreased 4.2% to $1.72 billion, beating analysts’ estimates of $1.64 billion.

For the fiscal year, the company is forecasting an adjusted-per-share loss of $1.38 to $1.48.

Cliffs’ debt dips

A trader said Cliffs Natural Resources’ debt was “not nearly as active” as it was last week, but that it was “probably giving back some of those gains” it earned on Friday.

“It could have been short covering,” he said of Friday’s highs.

The trader pegged the 4.95% notes due 2018 at 80, which compared to levels around 82.

At another desk, the 6¼% notes due 2040 were seen off over a point at 66, while the 4 7/8% notes due 2021 slipped 1½ points to 68½.

The 4.8% notes due 2020 lost a deuce to end at 69.

Moody’s lowered its rating on the iron ore producer and its senior unsecured notes to Ba2. The agency attributed the action to the belief that iron ore and coking prices would remain weak.

On Friday, the company said that it would be writing down $6 billion in assets related to its acquisition of an iron ore mine in Canada.

Fannie, Freddie slide

Fannie Mae and Freddie Mac preferreds gave back early gains on Monday as investors await a deal with the agencies’ regulator regarding how banks lend to weaker borrowers – and when said banks will be held responsible for any loans that turn sour.

Freddie’s fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) fell a nickel, or 1.33%, to $3.70.

About 3.8 million shares changed hands.

In Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS), they ended down 8 cents, or 2.14%, to $3.65, with about 4.38 million being traded.

© 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.