Arcelor debt rises on capital raise plans; Linn hires advisers, bonds plummet; MEG trades active

By Stephanie N. Rotondo

Seattle, Feb. 5 – It was another mixed day for distressed bonds as fresh news was moving specific credits one way or another.

In addition to the credit-specific news, the latest jobs report was also a mixed bag.

The latest report from the Labor Department showed non-farm payrolls increasing by 151,000 jobs in January, resulting in a lower unemployment rate of 4.9%.

However, analysts had been expecting an add of 190,000 jobs while the unemployment rate held steady at 5%.

Additionally, data for November and December was downwardly revised to reflect 2,000 fewer jobs added in those months than was previously thought.

The news was also increasing bets that the Federal Reserve would choose to raise interest rates in March.

As for distressed dealings, ArcelorMittal bonds were boosted by news the steelmaker was considering raising as much as $3 billion in new capital to take out as much as $4 billion in debt. Investors seemed appeased by that announcement, even as the company said it lost nearly $8 billion in 2015.

Linn Energy LLC was meantime down heartily in Friday trading following word that the company had hired advisers to explore strategic alternatives.

The Houston-based oil and gas producer made the announcement late Thursday, also noting that it had fully drawn down its credit facility, giving it $919 million in additional liquidity.

Arcelor boosted

ArcelorMittal said late Thursday that it not only lost nearly $8 billion in all of 2015, but that it was looking to raise as much as $3 billion in new capital to take out as much as $4 billion in debt.

On the news, “the bonds were up markedly, but it looks like they came back to earth,” a trader said.

The trader saw the 7¼% notes due 2021 holding steady at 86½. The 7½% notes due 2021 dipped a quarter-point to 86, as the 8% notes due 2039 rose over 3 points to 76¼.

The 6 1/8% notes due 2018 ticked up half a point, the trader said, ending at 95½.

“All on heavy volume,” the trader added.

A second trader said the debt was “up on that news about raising capital, debt reduction, etc.” He said the bonds were up 5 to 6 points on the day.

Specifically, he said the 6¼% notes due 2022 traded as high as 88, but came off those highs to end in an 86 to 87 zip code.

That compared to previous levels between 81 and 82, he said.

In addition to losing nearly $8 billion for fiscal 2015 – compared to a loss of $1.1 billion the year before – Arcelor said it lost $955 million in the fourth quarter alone. The company blamed the disappointing results to weak steel prices, which have been exacerbated by an increase in Chinese steel exports.

Revenues declined to $64 billion for the year, a 20% decline.

Still, Arcelor hopes a new capital raise will better position the company while prices remain depressed. The new funds will come via a rights issue for shareholders, with the Mittal family contributing up to $1.1 billion.

The company also intends to sell its 35% stake in Gestamp Automoción for about $975 million.

Proceeds from both the rights issue and the asset sale will be used to lower the company’s debt burden to under $12 billion.

Linn bonds drop

Linn Energy bonds took a hefty hit Friday after the company said it had hired advisers to review its strategic options.

At one desk, a trader said the 6¼% notes due 2019 fell 8 points to 2½. The 8 5/8% notes due 2020 were down 12½ points to 2 1/8, while the 6½% notes due 2019 dove over 9 points to 3¼.

The 6½% notes due 2021 were seen 8 points lower at 2¼.

“Now that’s a hit,” the trader said.

“That paper got clobbered,” another trader said. He placed the 6¼% notes around 2, which he said was off as much as 15 points.

Amid a weak oil market, Linn, like many of its peers, is struggling to stay afloat. As such, it has hired Lazard as a financial adviser and Kirkland & Ellis LLP as a legal adviser to go over options the company has to improve its bottom line.

After drawing down $919 million from its credit facility, Linn said it has adequate liquidity to continue operations while it considers its options.

MEG active

Elsewhere in the oil and gas space, MEG Energy Corp. was deemed “fairly active,” just one day after the Canadian oilsands producer released its quarterly results.

A trader said there was “pretty good volume” in the 6 3/8% notes due 2023, which ended unchanged at 39½. He also saw the 6½% notes due 2021 rising a deuce to 42.

Another trader said the name was “fairly active,” pegging the 6 3/8% notes in a 39 to 40 zip code. He also said that was unchanged, but noted that the bonds had dropped to those levels from around 41 on Thursday.

For the fourth quarter, MEG posted a net loss of C$297.3 million, or C$1.32 per share. That compared to a loss of C$150.1 million, or C$0.67 per share, the year before.

The operating loss came to C$140.2 million. For the same quarter of 2014, the company had seen an operating profit of C$8.1 million.

MEG attributed its wider losses to weak oil prices and a strong U.S. dollar.

The company also announced that it was cutting its capital expenditure budget for 2016 to C$170 million. That compared to previous estimates around C$328 million just a couple months ago.

© 2015 Prospect News.
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