Distressed debt closes with softer tone; Alliance One pops on earnings; coal softens on ruling

By Stephanie N. Rotondo

Phoenix, June 9 – The distressed debt market took yet another hit Tuesday, despite a U.S. wholesale inventories report that showed gains – due in part to stabilizing oil prices – and a Labor Department report showed that job openings were outpacing hirings.

But investors weren’t as much focused on data as they were on a looming interest rate hike and the ongoing Greek saga.

A trader noted that Greek officials are seeking to extend its current bailout terms until March 2016. If that isn’t approved, the nation has three weeks to work out some other deal with European leaders.

Should the country fail to get a deal done, that could mean a hefty increase in volatility, the trader said.

Meanwhile, a job turnover report is expected to come out Thursday – the last such report the Federal Reserve will see ahead of their next meeting, at which point many expect the central bank to move forward with a rate increase in September.

“Things in general were weak,” one trader remarked.

However, the weakness wasn’t hitting everyone the same.

Alliance One International Inc. saw its bonds pop after the company reported earnings. One trader said the name was also quite active.

Meanwhile, the coal arena was down in the dumps yet again as the industry was seen losing a fight against the federal government. A lawsuit brought by Murray Energy Inc. and others within the sector aimed at nixing new Environmental Protection Agency rules was dismissed on Tuesday, as judges deemed the effort as premature.

Alliance One rises

Alliance One International’s debt got a boost Tuesday after the tobacco distributor reported earnings.

One trader said the 9 7/8% notes due 2021 were a “big mover,” rising 4 points to 90¾.

Another trader said the bonds were “up about 5 points,” trading in a 91 to 92 context after numbers.

For the fourth fiscal quarter ended March 31, total sales and operating revenue rose 19.9% to $738.1 million. Operating income increased nearly 40% to $40 million.

Net income was $3.8 million, or 4 cents per share. That compared to a net loss of $17.1 million, or 18 cents per share, the year before.

For fiscal 2015, total sales and operating revenues declined 12.3% to $2.07 billion. The decline was due in large part to a 10.9% decrease in volumes and a 3.6% decline in average sales prices.

Operating income fell 7% to $110.8 million.

Still, net loss narrowed to $15.4 million, or 17 cents per share, from $86.7 million, or 99 cents per share, the previous year.

As of March 31, available cash and credit was $813.2 million, including $143.8 million in cash and $669.4 million in credit.

Coal softer after court ruling

Murray Energy Corp. and other coal producers were “down again,” a trader said Tuesday.

The declines came as a federal judge ruled that Murray and others could not challenge new coal plant rules proposed by the Environmental Protection Agency until the rules had actually been finalized.

At one desk, a trader said Murray’s 11¼% second-lien senior secured notes due 2021 were off a couple points, trading around 90.

That trader also saw Peabody Energy’s 10% notes due 2020 fell to 69. The 6½% notes due 2020 and the 6¼% notes due 2021 meantime dipped into the mid-40s.

“People look at it like they lost the initial fight,” the trader said. “It’s just more negative headwinds for the coal space.”

At another desk, a trader saw Peabody’s 6¼% notes falling over 1½ points to 45¼, while the 6½% notes dropped 2 points to 47.

Arch Coal Inc.’s 8% notes due 2019 meantime declined “almost 2 points” a trader said, placing the issue at 28.

And, in Walter Energy Inc.’s 9½% notes due 2019, those were seen “down a couple points from a week ago” at 51.

On Monday, it was reported that Walter could be filing for bankruptcy as soon as this month.

In its ruling, three circuit court judges deemed a lawsuit brought by Murray and other coal companies – as well as 14 coal-producing states – premature, given that the EPA rules have yet to be finalized.

The EPA first proposed the rules back in June. Once they go into effect, the rules – aimed at reducing greenhouse gas emissions – could close plants, hinder the construction of future plants and slow U.S. coal demand.

© 2015 Prospect News.
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