Consol, Peabody bonds decline post-earnings; Arch Coal cancels debt swap; AK Steel surprises

By Stephanie N. Rotondo

Seattle, Oct. 27 – The distressed debt market was focused on a round of earnings on Tuesday, specifically in the commodity space.

In the coal sector, Consol Energy Inc. and Peabody Energy Corp. released their third-quarter results. Bonds – and stocks – weakened in response, though Consol swung to a profit and Peabody’s numbers beat expectations.

Also in the coal arena, Arch Coal Inc. nixed an exchange offer for three series of notes after the company failed to secure lender approval on the deal. Those bonds also ended down on the day.

Among U.S. steelmakers, AK Steel Holding Corp. put out its latest financial report, which showed a surprise profit. However, the company also announced that its chief executive officer, James L. Wainscott, will retire at the beginning of the year.

Roger Newport, chief financial officer, has been tapped to take over the CEO role. Wainscott will continue to be chairman of the board after his departure.

Consol debt wanes

A trader said Consol Energy’s 5 7/8% notes due 2022 contracted by 3 points after the company reported earnings on Tuesday.

The trader pegged the issue at 68.

The stock (NYSE: CNX) retreated $1.88, or 21.22%, to $6.98.

For the third quarter, the Pittsburgh-based coal and natural gas producer reported net income of $119 million, or 52 cents per share, on revenue of $814 million.

By comparison, Consol posted a loss of $1.6 million, or a penny per share, on revenue of $885 million in the third quarter of 2014.

Revenue from gas and liquids declined 21% to $202 million, while coal sales declined 16% to $404 million.

Still, the overall figures were helped by the company’s cost-cutting efforts.

On an adjusted basis – which took away gains from recent asset sales, among other things – Consol had a loss of $64 million, or 28 cents per share.

Long-term debt at the end of the quarter was $2.78 billion.

In addition to reporting earnings, Consol debt might have also suffered from weakness in natural gas prices, which fell to an over three-year low on expectations of a warmer-than-usual winter.

Peabody numbers beat

Fellow coal producer Peabody also came out with earnings on Tuesday.

On the heels of the release, a trader said the bonds were “a little bit weaker,” seeing the 10% second-lien notes due 2022 fall “as much as 2 to 3 points” to 37½.

A second market source placed the 6½% notes due 2020 at 21 bid, down over a point.

The company’s equity (NYSE: BTU) declined $4.73, or 21.84%, to $16.93.

St. Louis-based Peabody reported a loss of $304.7 million for the third quarter. That equated to a loss per share of $16.73.

In the same period of 2014, net loss was $150.6 million, or $8.44 per share.

On an adjusted basis, EBITDA was $129 million and adjusted loss per share was $8.13.

Revenue was down year over year at $1.42 billion from $1.72 billion.

Analysts polled by Zacks Investment Research had forecast a loss per share of $8.20 on revenue of $1.37 billion.

Peabody also lowered in guidance on production, stating that it “expects additional coal production curtailments in response to current prices,” in the earnings announcement.

“In addition, limited capital spending is anticipated to act as a future supply constraint,” the company said. “Industry reports indicate a 70% decline in capital investment from the top coal producers from recent highs in 2012. The company anticipates that coal prices will need to rise well above current levels to incentivize new investment to maintain adequate supply to meet seaborne demand over time.”

Arch nixes swap

Weak earnings weren’t the only bad news to hit the coal sector on Tuesday.

Arch Coal announced Tuesday that it was terminating a previously proposed debt swap that was aimed at providing more liquidity to the company.

The nixed deal was due to the company being unable to secure lender approval on the offer.

A trader said the news did not result in a lot of trading in the name, though he said the unsecured bonds – including the 7% notes due 2019 and the 7¼% notes due 2021 – were trading lower in a 1 to 2 context.

The common stock (NYSE: ACI) slipped 46 cents, or 22.89%, to $1.55.

In an effort to stave off a bankruptcy filing, Arch said it was engaged in discussions with creditors.

On the news, Fitch Ratings said it had affirmed its issuer default rating, as well as the ratings on the notes. However, the agency lowered the company’s credit facilities.

AK Steel posts profit

In the steel space, AK Steel posted a third-quarter profit of $6.7 million, or 4 cents per share. That compared to a loss of $7.2 million, or 5 cents per share, the year before.

Revenue improved 7.3% to $1.71 billion.

The figures came in better than expected, as analysts polled by Thomson Reuters had predicted a loss of a nickel per share on revenue of $1.7 billion.

Despite the surprise profit, a trader said there was “not a lot of activity” in the bonds.

“I don’t think there was a big reaction to it,” he said. “I think people look at the numbers and think ‘not great,’ but they also bought back some bonds, so...”

During the quarter, the steel producer bought back $12.5 million in senior notes on the open market. The company also paid its revolving credit facility down by $45 million.

At another desk, a source deemed the 7 5/8% notes due 2020 off 5 points at 52 bid.

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