Cliffs Natural bonds stay active on earnings; Arch ends mixed; Walter, Affinion set to report

By Stephanie N. Rotondo

Phoenix, Oct. 29 – Distressed bonds held up relatively well Wednesday, even as the Federal Reserve’s Federal Open Meeting Commission said that it would in fact end its bond repurchase program this month.

In a statement released Wednesday, the committee said that it was optimistic about the labor market and a declining unemployment rate. However, interest rates are being kept at near-record lows for the time being.

As for the day’s distressed activity, it was being driven by a recent round of earnings, as well as pending numbers.

Traders said Cliffs Natural Resources Inc.’s bonds were unchanged to slightly lower on the day, following the company’s earnings announcement after Monday’s close. Come Tuesday trading, the bonds had improved by 3 to 4 points.

Traders also gave mixed reports on Arch Coal Inc., which put out numbers on Tuesday.

On tap for Thursday are earnings from Walter Energy Inc. and Affinion Group Inc. While a trader said Walter was “pretty dead” during the session, Affinion’s 7 7/8% notes due 2018 were seen a couple points weaker.

One trader said the debt was “down significantly from a couple days ago,” placing the issue at 75½ – a 4-point decline.

Another trader deemed the debt “a couple points lower” in a 75½ to 76 context.

“Maybe people are just taking some profits ahead of the numbers,” the trader said.

Cliffs’ debt mixed

A trader said Cliffs Natural Resources’ bonds were “retreating off the highs” reached Tuesday following the company’s earnings announcement late Monday.

The trader saw the 6¼% notes due 2040 fell nearly a point to 70, while the 5.9% notes due 2020 weakened a point to 82½. The 4 7/8% notes due 2021 fell almost that much to 77 and the 4.8% notes due 2020 lost over a point, closing at 78¾.

“It was all profit taking from the run up,” the trader said.

“I don’t think Cliffs moved that much,” another trader said, noting that the name was active on the day. He did remark that the 4 7/8% notes “drifted down a little bit” to 77.

For the third quarter, Cliffs reported a net loss of $5.88 billion, or $38.49 per share. The loss was much wider than the previous year, due to a $5.7 billion write-down of its coal and iron ore assets.

For the same quarter of 2013, the company posted a profit of $117.2 million, or 66 cents per share.

Revenue declined 16% to $1.3 billion.

Analysts had been forecasting a loss of 7 cents per share, with a 17% year-over-year decline in revenues.

The company has been looking to sell off some of its non-core assets, including its U.S. coal assets. But with Casablanca Capital’s recent shakeup of the board of directors, some are wondering if the activist investors’ goal is to break up the company entirely.

Arch steady post-earnings

Arch Coal was also deemed “about unchanged” by a trader, who pegged the 7¼% notes due 2021 at 38.

A second trader called that issue up half a point at 38.

The second trader also saw the 7% notes due 2019 at 40½, unchanged on the day. However, he said the 8% notes due 2019 fell 7 points from the last trades seen over a week ago, placing the paper at 65½.

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.

© 2015 Prospect News.
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