Cliffs jumps on possibility of debt take-out; California Resources’ paper retreats with oil

By Stephanie N. Rotondo

Seattle, June 16 – While the distressed debt arena continued to trend lower on Thursday, the day’s most notable name ended with a firm tone.

Traders said Cliffs Natural Resources Inc.’s bonds popped on news the iron ore producer was planning an equity offering to take out the 3.95% notes due 2018. That issue in particular “rallied a pretty good bit,” a trader said.

But away from Cliffs, most price moves were toward the down side.

California Resources Corp., for instance, was “getting hammered,” a trader said, as domestic crude oil prices remained under pressure.

Intelsat SA also continued its descent, falling “a good 2 to 3 points on the day,” according to a trader.

The trader said that most of the declines were centered on the Intelsat Jackson Holdings SA debt. He saw that subsidiary’s 7¼% notes due 2019 fall to 69 from 71 while its 7¼% notes due 2020 drifted down to 65.

“There wasn’t a ton of volume, but it was definitely heavy,” he said.

The unit’s debt has been weakening all week, though there has not been any news to explain the slide.

Cliffs’ climbs higher

Cliffs Natural Resources’ debt got a boost Thursday after the Cleveland-based company registered up to $300 million in new equity.

In its registration statement, the company said proceeds from the offering would be used to take out the 3.95% notes due 2018.

One trader said that the issue immediately jumped to 99 on the news, up from Wednesday’s closing levels around 87½. By the end of the day, they had settled in around 96, he said.

Another trader called the issue up “about 8 points” in a 96 to 97 context.

As for the rest of the capital structure, the first trader saw the 8¼% notes due 2020 ticking up 1 to 1½ points to 101¼. The 5.9% notes due 2020 were called nearly 3 points better at 70.

A trader did note that the issue is not callable and that therefore the paper “should still trade with a little bit of uncertainty.” He speculated that the company planned to take out the debt via a tender offer.

“In the end, it’s probably a money-good piece of paper,” he said.

California Resources declines

Continued pressure in crude oil wasn’t doing much to help California Resources’ bonds on Thursday.

“They were definitely weaker,” a trader said, placing that 8% second-lien notes due 2022 at 65, down from around 68 on Wednesday. He also saw the 6% notes due 2024 at 45, which compared to levels around 52 “a couple days ago.”

At another desk, a trader said the 8% notes were “under some pretty good pressure.”

The weakness in the name has been attributed to recent declines in crude oil, which has dropped from its recent highs just last week to the lowest levels seen in about a month.

For its part, domestic crude ended off 4.1% at $46.04.

Part of what is dragging the commodity down is concerns about the United Kingdom’s vote next week on whether or not to leave the European Union – even though campaigning on the so-called “Brexit” has been suspended due to the assault and death of British lawmaker Jo Cox on Thursday.

Also weighing on prices are worries about a slight uptick in U.S. production as prices improved about 75% from February to early June. Should producers seek to take advantage of the higher prices by increasing production, the oversupply problem will only be exacerbated.

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