Peabody rises despite wider loss; Consol inches up; AK Steel beats outlook; Cliffs ends mixed

By Stephanie N. Rotondo

Phoenix, July 28 – There was “generally a little bounce in some stuff,” a distressed debt trader reported Tuesday.

The bounce came amid a round of earnings in the commodity space.

Peabody Energy Corp., for one, brought its second-quarter results early in the day. The numbers missed estimates, but investors pushed the company’s bonds higher anyway.

Consol Energy Inc. was another name with earnings out. As the company warned just a week ago, its quarterly loss widened for the quarter. However, the company maintained its production growth forecasts for the coming two years.

Rounding out the earnings releasers was AK Steel Holding Corp. Those figures beat expectations, resulting in as much as a 7-point point pop in the bonds.

Overall, strength was seen returning to the commodity space, helped in part by a gain in benchmark crude oil prices.

“All [the gains] were on oil, which stemmed the tide of outflows,” a trader said.

SandRidge Energy Inc.’s 8¾% notes due 2020 benefited from oil’s upward move, rising a point to 77½, according to a trader.

Energy XXI Ltd.’s debt was also better.

A trader saw the 11% notes due 2020 putting on a quarter-point to end at 74¾, while the 7½% notes due 2021 inched up half a point to 21¾.

Swift Energy Co., however, saw its 8 7/8% notes due 2020 holding steady at 25¼.

The company said Tuesday that it had hired Lazard Freres & Co. LLC to look into its capital structure, financing alternatives and strategic opportunities.

Peabody bonds firm

Peabody Energy’s debt was “actually a little bit better,” a trader said after the company reported a wider quarterly loss.

In addition to announcing its latest results, the coal producer also said it was suspending its stock dividend.

A trader said the 6% notes due 2018 were the most active bonds in the structure, closing at 31½. That was up from the lows around 29.

The 6½% notes due 2021 finished half a point better at 22½, the trader said, while the 6½% notes due 2020 ticked up a touch to 23¾.

For the quarter, net loss was $1.04 billion, or $3.84 per share. That compared to a loss of $73.3 million, or 27 cents per share, the year before.

The larger loss was attributed to $900.8 million taken in impairment charges.

Revenue meantime declined almost 24% to $1.34 billion.

In response to a glut of metallurgical coal in the market, Peabody said it was lowering its annual production of the product by 3 million tons. In that vein, the company also cut its yearly sales target by about 1 million tons.

Total sales volumes were also downwardly revised to 225 million to 245 million tons from 235 million to 255 million tons.

On the plus side, Peabody touted its liquidity – over $2 billion – and said its board of directors had approved a reverse stock split to boost its lagging equity price.

Consol loss widens

As was expected, Consol Energy reported a wider loss for its most recent quarter.

Despite the weak numbers, the company’s bonds were moving up along with the rest of the energy sector.

A trader pegged the 5 7/8% notes due 2022 at 78¼, up over a point on the day.

A second market source saw the 8% notes due 2023 at 83¾ bid, a gain of almost 2 points.

Net loss came to $603 million, or 2.64 per share, for the quarter. That compared to a loss of $25 million, or 11 cents per share, the year before.

The loss included an impairment charge of $829 million due to weak commodity prices.

Capital expenditures were again cut to $800 million for the year, leaving only $250 million slated for the second half of 2016. For 2016, capex was reduced to $400 million to $500 million.

Still, the company remained optimistic about its production growth for the current year and the next. Consol is forecasting 30% growth in 2015 and 20% growth in 2016.

AK Steel beats estimates

AK Steel bonds improved significantly on Tuesday as the company’s results beat expectations.

One trader said the 7 5/8% notes due 2020 closed “close to 67,” which compared to levels around 60 on Monday.

Another source pegged the issue at 66¾, a gain of nearly 7 points on the day.

Weaker steel prices and slowing global demand – particularly in China – resulted in a loss of $64 million, or 36 cents per share.

Revenue was $1.69 billion.

Analysts were expecting a loss of 37 cents per share on revenue of $1.67 billion.

The company attributed the revenue increase to ongoing strength in the automotive arena.

Cliffs numbers on tap

Looking ahead, Cliffs Natural Resources Inc. paper was trending mostly higher ahead of the iron ore producer’s earnings release on Wednesday.

A trader called the 5.95% notes due 2018 almost 2 points better at 51¾. The 4 7/8% notes due 2021 rose over 2 points to 28¼.

However, the 4.8% notes due 2020 fell 4 points to 30, according to the trader.

Fannie, Freddie mixed

Fannie Mae and Freddie Mac preferreds were quite busy, but mixed in Tuesday trading.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 4 cents to $4.57, with about 2.68 million shares trading. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ), however, were off a penny at $4.54, on about 5.66 million shares trading.

There was no fresh news out on the mortgage giants to explain the surge in activity, a market source said.

“There was no major fundamental story out today, which could explain why one was up and the other down,” the source said. “There was an article this morning about a couple of the hedge funds that invested in them and [how] poorly they have done.”

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