Cliffs Natural’s debt holds ahead of earnings; Magnetation sinks; Alpha Natural results on tap

By Stephanie N. Rotondo

Phoenix, April 28 – The distressed debt market continued to keep an eye on new and upcoming earnings during Tuesday’s session.

Cliffs Natural Resources Inc. published its first-quarter results after the market closed, posting a wider loss. Ahead of the release, the iron ore producer’s debt was “holding up,” a trader said.

Also in the iron space, a trader said Magnetation LLC’s 11% notes due 2018 “got hammered,” falling to 23 from previous levels in the low-30s.

The trader attributed the decline to news that AK Steel had written down the value of its joint venture with Magentation Inc.

In turn, the write-down resulted in a wider loss for AK Steel at $306.3 million, or $1.72 per share. The year before, the company had reported a loss of $86.1 million, or 63 cents per share.

“I guess they don’t think highly of the prospects of that business,” a trader said of the write-down news.

Meanwhile, investors are gearing up for Alpha Natural Resources Inc.’s own earnings release on Thursday. Investors might be anticipating a weak quarter, as the bonds have been under pressure of late.

Cliffs’ beats estimates

Cliffs Natural Resources’ bonds were unchanged to better ahead of the company’s earnings release late Tuesday.

One trader said the 5.9% notes due 2020 jumped 6 points from levels seen a week ago, ending around 58½.

“The bonds have been creeping up recently,” another trader said, seeing the 7¾% second-lien notes due 2020 trading around 71. However, he noted that the paper printed at 73 right around when the numbers came out.

The second trader also saw the 5.95% notes due 2018 “still with an 80-handle.”

The Cleveland-based company saw its first-quarter revenue fall 28% to $446 million, due in large part to lower domestic iron-ore sales.

Analysts polled by Thomson Reuters had forecast revenue of $562 million.

Net loss was $759.8 million, or $4.26 per share. That compared to a loss of $70.3 million, or 54 cents per share, the year before.

On an adjusted basis, earnings per share was 2 cents.

Analysts had predicted an adjusted loss of 39 cents per share.

Looking forward, Cliffs cut its guidance on U.S. iron ore sale and production volumes to 20.5 million tons from 22 million tons.

Also on Tuesday, the company said it had successfully completed the sale of its Chromite deposits in northern Ontario to Noront Resources Ltd. The company sold the assets for $27.5 million in cash.

Alpha Natural softens

Alpha Natural Resources’ debt was meantime “dipping a little bit lower,” according to a trader.

The trader said the unsecured paper – the 6¼% notes due 2021 and the 6% notes due 2019 – traded in the low-20s.

Another trader pegged the 6¼% notes at 21, which he said was unchanged. But he called the 6% notes off half a point at 22¾.

The trader also saw the 9¾% notes due 2018 at 38½, a loss of 1½ points on the day.

At another desk, the 6¼% notes were seen at 21¾ bid, off a quarter-point.

Ahead of the Bristol, Va.-based coal company’s earnings release on Thursday, the market appears to have mixed feelings.

According to Zacks, Alpha Natural could come with a surprise, as it did in the fourth quarter when the company reported positive earnings. If that proved to be the case, it would be because of the company’s cost-cutting efforts.

However, analysts at stock-trading platform Trefis think that while the cost-cutting initiatives will help, the company is still laboring under weak market conditions. In that regard, it is looking at how the company intends to improve its liquidity position.

© 2015 Prospect News.
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