Cliffs Natural Resources bonds climb on numbers; iHeart off post-results, Twitter converts slide

By Paul Deckelman

New York, Oct. 28 – Favorable quarterly numbers were driving iron and coal miner Cliffs Natural Resources Inc.’s recently beleaguered bonds solidly higher in very active dealings on Tuesday, distressed debt traders said Tuesday.

However, not-so-favorable numbers were seen as the catalyst for radio and outdoor advertising company iHeartMedia, Inc.’s notes to retreat, also in busy trading.

Recently embattled oil and natural gas-sector bonds such as Quicksilver Resources Inc., Endeavour International Corp., Samson Investment Co. and Sandridge Energy Inc., as well as oilfield services operator Hercules Offshore, Inc., continued to retreat, despite a rebound Tuesday in world crude oil prices, which reached their highest level in nearly a week on expectations that gasoline stockpiles in the United States will show a drop when government figures come out Wednesday.

In the convertibles market, Twitter Inc.’s notes lost several points, falling into the low 90s, in line with a slide in the social media company’s underlying shares, after it posted weak third-quarter user growth and faced a number of downgrades.

Cliffs Resources climb

A trader said that “one of the big movers” was Cliffs Natural Resources bonds, “after their conference call” which followed the Cleveland-based coal and iron-ore mining company’s release of its third-quarter numbers.

He saw the company’s various bonds up 3 to 4 points in response to the earnings news.

“There’s a big short in them too, so I’m sure that the bonds got squeezed as well, and that accounted for the move up.”

Another trader said that “Cliffs came out of the gate a little better, then roared up, and now they’re coming in.”

He said that “there was some [short]-covering, then I think some people decided that this was probably a good time to sell some bonds,” following their early advance.

“But they’re all better [on the day], even though they’re coming back a little.”

He said that across the spectrum “they were up about 5 points or so after they came out with good number.”

One of the most active issues, he said, was the 4 7/8% notes due 2021 which “was up something like 6 or 7 [points], but now that they’re coming back in a little, they’re up 5,” around the 77 bid mark.

The company’s 3.95% notes due 2018 “got up to around 88, now they’re back to 86 – but they started the day around 82-83.”

A market source said the company’s 4 7/8s were easily the most heavily traded junk bond on Tuesday, with turnover of more than $58 million and a closing price of 77¾ bid.

They were joined at the top of the Most Actives list by Cliffs’ 6¼% bonds due 2040, which gained 3¾ points to end just below 71 bid, with over $51 million traded.

The 3.95% notes saw more than $20 million change hands, with the bonds up 3½ points at 86 bid.

That paper was “up a good bit post-numbers,” yet another trader said.

He opined that “they’ve been under a lot of pressure over the past month or so, and everybody’s been very negative, puking them [up].

“This could be some short-covering, it could be a relief rally that the numbers weren’t worse and they had some positive things to say on the call.”

Coal a mixed bag

In that same coal sector, a trader saw Arch Coal Inc.’s bonds unchanged to off a little after the St. Louis-based thermal and metallurgical coal producer reported 2014 third-quarter numbers.

He said “the round-lot markets” on the company’s 7% notes due 2019 “were looking the same,” at around the 40 bid mark.

He said its 7¼% notes due 2021 “look a little lower – about a point or so,” just under 40 bid.

The secured 8% notes due 2019 were also down 1 to 1½ points “so it looks like they’re a little off,” around the 70 mark.

Another trader said that Arch “was under a fair amount of pressure [Monday] versus where they were on Friday.”

He suggested that “they stabilized or maybe were even a smidge better, but not a lot.”

With continued weak conditions in the coal business, Arch continued to lose money during the quarter – though its losses were reduced from where they had been a year ago.

In the latest quarter, revenues fell to $742.2 million from $791.3 million in the year-earlier period.

But with improved margins from its operations in the Western part of the United States mining thermal coal, used for heating and power generation, its loss from operations came in sharply to $35.3 million from $234.8 million a year ago, and adjusted EBITDA increased to $71.9 million from $69.4 million.

The company’s net loss narrowed to $97.2 million, or 46 cents per diluted share, versus $128.4 million of red ink, or 61 cents per diluted share, a year earlier.

The company also reported that it ended the quarter with $1.3 billion of total liquidity, including nearly $1.1 billion of cash, and said that it had no debt maturities coming due before the middle of 2018 (see related story elsewhere in this issue).

He meantime saw sector peer and cross-town rival Peabody Energy Corp.’s bonds were better, with the company’s 6% notes due 2018 trading at 96-97, which he called up ½ point.

He saw Peabody’s 6¼% notes due 2021 going out around 92½, calling that up ¾ point.

“That was the active one,” he said, with more than $16 million traded.

Another trader mapped the bonds going home at 93½ bid, up 1 point, while its 6½% notes due 2020 gained ¾ point to end at 94¼ bid.

Energy names under pressure

A trader said that the oil and natural gas sector “was roughly unchanged – they didn’t really catch the bid with the rest of the market,”

Among the losers in the E&P sector on the day, another trader said, were Denver-based Quicksilver Resources’ 7 1/8% notes due 2016, which lost 2¼ points on the day to fall to 22½ bid. Oklahoma City-based SandRidge Energy’s 7½% notes due 2021 dropped 1 point to 95 1/8 bid. Houston-based Endeavour International’s

12% notes due 2018 slid by 3¾ points to 69 5/8 bid. Tulsa, Okla.-based Samson Investment’s 9¾% notes due 2020 were down 1 point at 77 bid, on volume of over $11 million.

In the oilfield services, Houston-based Hercules Offshore’s 8¾% notes due 2021 plunged by 4½ points to 63 bid.

The energy names continued to slide, even though world oil prices – which had been falling in recent days on oversupply concerns – pulled out of their nosedive on Tuesday to hit their highest levels in about a week. December contract West Texas Intermediate crude was up 28 cents to $81.70 in New York trading Tuesday.

iHeart off after results

Apart from the energy names, a trader said that iHeartMedia’s bonds – issued by the company formerly known as Clear Channel Communications – were weaker after the San Antonio, Texas-based radio broadcaster and outdoor advertising firm reported quarterly results.

He saw its 10% notes due 2018 down around 83, while its 14% notes due 2021 were at 88 bid, calling those levels down 1 to 2 points.

The company’s 9% notes due 2022, which it had sold just last month, “weren’t nearly as active, down a little bit.”

He located them at around a 99 to par context.

Over $32 million of the 10% notes traded, and over $24 million of the 14% paper.

Twitter comes in

In the convertibles market, Twitter’s 0.25% convertibles due 2019, or the A tranche, traded down about 5 points at 92.50 versus an underlying share price of $42.50. That was down about 0.25 point to 0.5 point on swap, a New York-based trader said.

Twitter’s 1% convertibles due 2021, or the B tranche, were seen at 92.25 versus the same stock price, and that also represented a contraction on swap of about 0.25 point to 0.5 point, the trader said.

The 0.25% converts had been trading around 97.5 as recently as Friday, while the 1% paper had been around 98.24 at that time.

The San Francisco-based social media company’s underlying New York Stock Exchange-traded shares had been down as much as 13% intraday but closed off $4.78, or 9.84%, at $43.78, on volume of over 83 million shares, about three times the norm.

“The As are outperforming the Bs on swap,” the trader said, but both were down compared to Monday’s close.

A second trader said that on a 50% delta, the A tranche bonds were unchanged, and for the Bs on a 58% delta, the paper expanded 0.125 point to 0.25 point.

“Certainly disappointing,” nevertheless, given a 12% stock move, the second trader said.

A third trader said “on the right hedge these bonds are not down.”

Twitter reported average monthly active users of 284 million, a 23% gain, which was much slower than in the year-earlier period. Also timeline views per user fell 7%.

For the quarter, Twitter reported a net loss of $175 million, or 29 cents per share. Excluding one-time items, the loss was $7 million, or a penny, which was in line with expectations.

Revenue was up at $361 million, which was better than expectations.

Looking ahead, revenue was projected to be $440 million to $450 million for the fourth quarter. Adjusted EBITDA is expected to be between $100 million to $105 million. Full-year revenue is expected to be $1.365 billion to $1.375 billion and adjusted EBITDA was projected to be in the range of $260 million to $265 million.

Following the earnings, Stifel Nicolaus downgraded Twitter’s stock to sell, citing “sluggish user growth and declining engagement metrics.” Other banks also cut their ratings on the company.

Twitter priced the $1.89 billion, dual-tranche convertible offering last month. It came with a 47.5% premium and was priced via joint bookrunners Morgan Stanley & Co. LLC, Goldman Sachs & Co. and J.P. Morgan Securities LLC.

Rebecca Melvin contributed to this review.

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