AK Steel dips ahead of earnings; Peabody downgraded; Alpha Natural ‘whacked’; Toys in decline

By Stephanie N. Rotondo

Phoenix, July 27 – The distressed debt market continued its downward spiral Monday, with commodities leading the way.

AK Steel Holding Corp.’s bonds “continued to be under pressure,” a trader said. Weak commodity prices and slower growth in China have weighed on the name in recent days.

In Monday trading, the 7 5/8% notes due 2020 dropped “a few more points,” a trader said, placing the issue “around 60.” Another market source also pegged the debt at 60, off over 3 points.

The declines came ahead of the company’s earnings release on Tuesday. Analysts are predicting a loss per share of 27 cents on revenue of $1.72 billion.

In the same quarter of 2014, the loss per share was 40 cents and revenue was up over 26%. In the first quarter of 2015, the loss per share came to 28 cents, with revenue of $1.75 billion.

Among other metal mining companies, iron ore producer FMG Resources saw its debt continue to weaken as well.

One trader said the 9¾% notes due 2022 were “down a little bit more” at 89. At another shop, the 6 7/8% notes due 2022 were seen off almost 3 points at 55 bid.

In the coal arena, Peabody Energy Corp. paper was “a little bit weaker,” according to a trader.

He saw the 10% notes due 2022 trading around “47-ish” and the unsecured notes trading in the mid- to low-20s.

Another source called the 6½% notes due 2020 down a point at 24 bid.

Fitch Ratings downgraded the company’s issuer default rating to CCC from B on Monday, citing concerns about liquidity amid a soft market for metallurgical coal.

Sector peer Alpha Natural Resources Inc. was also losing ground during the session as speculation grows that the company may soon find itself in bankruptcy court.

“Those keep getting whacked,” a trader said the 7½% second-lien notes due 2020. He called the issue “down a few more points” at 15½ bid, 16 offered.

The 6¼% notes due 2021, however, were seen moving up almost 2 points to 5 bid at another desk.

Toys’ debt sinks

Toys “R” Us Inc. bonds were also losing ground in Monday trading, after it was reported that some insurance providers were cutting back on their coverage to the Wayne, N.J.-based retailer’s suppliers.

That news came amid reports that Toys was looking to hire additional advisors to go over its balance sheet and come up with restructuring options.

A trader said the 10 3/8% notes due 2017 was the most active of the company’s structure, falling to a 76 to 77 context. The 8½% first-lien notes due 2017 hit a low around 96, he said, but “rebounded a little bit” to go out around 98.

Another market source pegged the 7 3/8% notes due 2018 at 66, a loss of nearly 5 points.

Vendor insurers Coface SA and Euler Hermes Group have reportedly removed Toys “R” Us from some of its policies and are declining to renew coverage in some cases, according to a Bloomberg article published Monday. The move comes as the company has seen two years of losses.

© 2015 Prospect News.
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