Coal issues stay lower amid talk Walter may file; iron ore names calm down

By Paul Deckelman

New York, July 14 – Coal mining credits continued to trade at weak levels on Tuesday, distressed-debt traders said.

They noted market scuttlebutt and news reports indicating that troubled producer Walter Energy Inc. could file for bankruptcy protection this week. But that company’s already battered bonds – trading for just pennies on the dollar – were not very active, with only small trades seen.

Traders saw more activity, at mostly lower levels, in names such as Arch Coal, Inc. and Peabody Energy Corp.

In addition to the bonds, Arch’s bank debt was seen active as well, trading at lower levels.

Iron-ore mining companies such as FMG Resources and Cliffs Natural Resources, which were getting knocked around at this time last week on lower iron-ore prices and fears of the slowing economy in China, seemed to stabilize, traders said, though at lower levels.

Oil prices rebounded during the session, coming off the early lows they had hit on investor fears that the achievement of a deal between the major powers and Iran over the latter’s nuclear power efforts would mean a quick end to economic sanctions and Iran’s return to world crude oil markets. But realization later in the day that probably won’t happen anytime soon helped crude prices.

But that rise didn’t do much, traders said, for such oil names as Linn Energy LLC and California Resources Corp.

Coal weakness continues

A trader said that “coal is still down, Arch Coal, Walter Energy, or whoever – they’re all still down, but barely breathing.”

Throwing an additional pall on the sector, he said was “talk that Walter Energy will be filing [for Chapter 11] – but it hasn’t happened yet.”

On Tuesday night The Wall Street Journal was reporting that Birmingham, Ala.-based metallurgical coal producer Walter is indeed preparing for a filing after agreeing on a fast-track restructuring process that would hand ownership of the coal miner to senior creditors.

The paper cited unidentified “people familiar with the matter.”

The rumors did not have too much impact on Walter’s bonds, most of which are already worth just pennies on the dollar. Its 9 7/8% notes due 2020 were going out at 1½ bid. There were only small-lot trades seen.

One of the trader said that Arch Coal’s bonds were busier, its 7% notes due 2019 “pretty much unchanged today, but active at lower levels” – 12½ to 12¾ bid, versus 15 bid “just a few days ago.”

Its 7¼% notes due 2020 traded between 27 and 28 bid, with about $5 million having traded.

The trader also said that St. Louis-based Arch’s bank loan debt was trading actively, around 60 to 61½ bid.

He said those levels “have been in a little” from 62 to 63 bid at the end of last week.

From that same sector, St. Louis-based Peabody’s 6% notes due 2018 were moving around a 37 to 39 context, “pretty much where they’ve been the last few days.

“But they’re point lower from where they were at the end of last week.”

Oil adds but bonds don’t

Elsewhere, the news that the United States and other western power had reached a deal with Iran regarding its nuclear power program initially sent crude oil prices skidding more than 2% in morning trading, with commodities investors fearful that the deal would mean that economic sanctions against Tehran would soon be lifted, leading to a flood of Iranian oil onto an already glutted market.

But by later on in the day, a trader said, prices had recovered.

“Maybe the supply concerns are already priced in – and also, the timing is a little further off. It’s not going to be tomorrow.”

By the end of the day, benchmark West Texas Intermediate crude for August delivery had more than made up for its early weakness on the New York Mercantile Exchange, going home at $53.04 per barrel, up 84 cents on the day.

“But the E&P space [in the junk bond market] was not moving in sync with it [the rise in oil prices],”the trader said.

He saw California Resources’ paper “not really moving around too much.”

The Los Angeles-based energy E&P name’s bellwether 6% notes due 2024 were in an 83 to 84 context, about where they had finished on Monday.

A trader saw Linn Energy’s debt, such as its 6¼% notes due 2019, holding in the low 70s, with that issue having traded over $15 million.

“Most of their issues were between 68 and 73 bid.”

He saw the company’s 7¾% notes due 2021 going out at 71½ bid, “down about a point from where they were yesterday [Monday],” he said.

Iron ore steady, lower

A trader said that iron-ore mining names “have gotten pretty beat up,” but seemed to have stabilized after gyrating around last week on lower iron-ore prices.

He saw Cliffs Natural Resources’ 7¾% second-lien notes due 2020 hanging in around 54-55.

“I don’t see much activity in them,” he said.

He said that Australian miner FMG Resources likewise was not much traded, or its prices moved.

Its 8¼% notes due 2019 held steady around a 74 to 76 range.

© 2015 Prospect News.
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