Peabody Energy stays on downward track; Sabine skips coupon; Colt files; MagnaChip downgraded

By Stephanie N. Rotondo

Phoenix, June 15 – It was “a brutal day” in the distressed debt market, according to a trader on Monday.

“It was a heavy day,” he said. He noted that there was some “nit-picky buying going on” and added that several bid-wanted lists were circulating.

Peabody Energy Corp. bonds continued to be in focus following a news report out Friday that indicated that company could be required to pay more for its mine liability insurance.

The debt “continues to keep getting hammered,” a trader said, seeing the 6¼% notes due 2021 at 38 and the 6% notes due 2018 at 50.

Another market source pegged the 6½% notes due 2020 at 40 bid, down a point on the day.

In a Bloomberg article out Friday, it was reported that the Wyoming Department of Environmental Quality’s Land Quality Division is taking a look at 2014 financial data from both Peabody and Arch Coal Inc. in order to see if the companies continue to qualify for a so-called self-bonding program that allows coal producers to insure cleanup costs in the event of a bankruptcy at cheaper rates. Should the companies fail to meet financial requirements, they will be forced to buy certain debt instruments or hold enough cash to cover any reclamation liabilities.

In May, Alpha Natural Resources Inc. was informed that it could no longer self-bond and was given until Aug. 24 to either post collateral or cash against $411 million of reclamation liabilities.

Sabine, Colt, MagnaChip little moved

Elsewhere in the market, Sabine Oil & Gas Corp., Colt Defense LLC and MagnaChip Semiconductor Corp. all had fresh news out.

However, all those bonds were little changed.

For its part, Sabine Oil said it was skipping a $21 million coupon payment due Monday on its 7¼% senior notes due 2019.

A trader placed the issue at 21, which was “pretty much unchanged.” The 9¾% notes due 2018 were also “about the same, might be down a point,” trading in a 15 to 17 context.

The missed interest payment comes after the company missed a $15.31 million payment on its second-lien credit agreement back in April. An auction to settle credit-default swaps on that indenture is being held June 23.

Sabine said it will continue to talk with creditors to come up with a plan to address the missed payment.

Meanwhile, Colt Defense announced that it had filed for bankruptcy protections on Sunday after a tender offer for its 8¾% notes due 2017 failed to meet the necessary requirements.

A trader said the notes were steady at 26 bid.

Colt intends to sell its assets as part of its bankruptcy process. Sponsor Sciens Capital Management LLC has agreed to provide the stalking horse bid for substantially all of the company’s assets, as well as certain liabilities.

As for MagnaChip, Standard & Poor’s downgraded the chipmaker on Monday to CCC+ from B-.

The rating agency attributed the rating change to an expectation that cash on hand will continue to decline amid substantial operating losses and weak demand.

Like Sabine and Colt, MagnaChip’s 6 5/8% notes due 2021 were barely moved by the news.

A market source placed the issue at 81 bid, 81¼ offered. That was down from 81¼ bid, 81½ offered previously.

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