Snowstorm weighs on distressed debt liquidity; Cliffs Natural remains in focus, ends up again

By Stephanie N. Rotondo

Phoenix, Jan. 27 – There was “limited activity” in the distressed bond market Tuesday “given the snowstorm,” a trader reported.

“We got a bit of a slow start” as some tried to trudge through the snow to get into their offices, he said. But as stocks were “getting hammered, there wasn’t a ton of follow-through in our market.”

But investors continued to eyeball Cliffs Natural Resources Inc.’s debt. On Monday, the company announced a $400 million debt reduction that helped the bonds gain traction. Come Tuesday, the iron ore producer said that its Bloom Lake affiliates had begun restructuring proceedings in Canada.

On that news, the bonds continued to gain ground, according to market sources.

At one desk, a trader deemed the name “up a couple points,” seeing the 3.95% notes due 208 trade up to 85 and the 4 7/8% notes due 2021 move into the low-70s.

At another desk, the 2018 issue was pegged at 84½ bid. 84¾ offered, up from 82¼ previously. The 2021 maturity closed at 70½ bid, 71¼ offered, which compared to levels around 69 on Monday.

And, the 6¼% notes due 2040 were seen rising to 66½ from 62.

The decision to place the Bloom Lake group into restructuring came after months of looking into the area’s options, including a possible sale, the company said in a press release. The company noted that the area is no longer generating revenue and cannot therefore meet its obligations.

Trading in Cliffs’ common stock was briefly halted ahead of the announcement.

The Cleveland-based company said Monday that it had reduced its overall debt by $400 million, due in part to a $200 million repurchase of senior notes.

The notes were bought in the open market at an average discount of 34%.

The company used cash from operations and proceeds from the sale of its Cliffs Logan County Coal asset to fund the debt reduction.

In addition to the reduction, the company also said that it was cutting its common stock dividend.

“We see accelerated debt reduction as a more effective means of protecting our shareholders than continuing to pay a common share dividend,” said Lourenco Goncalves, chairman, president and chief executive officer, in a prepared statement. “The elimination of this dividend provides us with additional free cash of $92 million annually, which we intend to use for further debt reduction.”

Elsewhere in the world of commodities, oil and gas names were climbing higher as oil prices rebounded.

A source saw SandRidge Energy Inc.’s 7½% notes due 2021 at 67¾ bid, up a point on the day.

West Texas Intermediate crude gained 86 cents, or 1.9%, to end at $46.01 per barrel. Brent crude improved by $1.03, or 2.14%, to $49.19.

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