Oil price surge bodes well for energy; Arch reports smaller loss, cuts dividend; Cliffs firms

By Stephanie N. Rotondo

Phoenix, Feb. 3 – The distressed debt market was “feeling better today,” a trader said Tuesday, following in line with a huge jump in equities that was spurred in large part by another surge in oil prices.

“Oil continued its ascent,” another trader said. “Short covering, I guess. But all those energy bonds traded [up] with it.”

Along with the oil price gains, a smaller-than-expected quarterly loss from Arch Coal Inc. helped push up the entire coal sector. Even iron ore producer Cliffs Natural Resources Inc. was trending higher, despite reporting a wider loss in the fourth quarter.

The firm tone of the day even helped Alta Mesa Holdings LP’s 9 5/8% notes due 2018 recover ground lost Monday on the back of news that its planned sale of certain Eagle Ford Shale assets had been terminated.

A trader said the bonds “bounced back” 7 points to 59. The paper had lost as much as 30 points in the previous session.

iHeartMedia Inc. debt was also rebounding Tuesday. It was reported Monday that a sale of Clear Channel Outdoor’s European advertising unit was delayed due to a declining euro and the bonds fell in response.

Come Tuesday, the 14% notes due 2021 were seen up 1½ points at 80¼, while the 10% notes due 2018 were called 2 points better at 86.

The 7¼% notes due 2027 edged up half a point to 81, according to a trader.

Oil’s gains spurs energy up

Oil prices have recovered most, if not all, of the losses seen since the beginning of 2015 and Tuesday’s surge helped the energy space move higher as well.

West Texas Intermediate crude gained $2.88, or 5.81%, to $52.45 a barrel. Brent crude pushed up $2.92, or 5.33%, to $57.67.

A trader said Quicksilver Resources Inc.’s 9 1/8% notes due 2019 and 11% notes due 2021 closed up around the 10 mark – a gain of 1 point for the 9 1/8% notes and over 2½ points for the 11% notes.

Samson Investments Co.’s 9¾% notes due 2020 meantime rose over 1 points to 33, while Linn Energy LLC’s 6¾% notes due 2020 improved half a point to 73¼.

Another market source saw Linn’s 7¾% notes due 2021 at 78½ bid, up over 2 points on the day.

Also moving upward was Hercules Offshore Inc. A trader said the 6¾% notes due 2022 earned 1½ points, closing around 35½, as the 7½% notes due 2021 put on 2 points, ending with a 38 handle.

In Energy XXI Gulf Coast Inc. paper, the 7¾% notes due 2019 were seen 2 points higher at 51. The 7½% notes due 2021 were up nearly 3 points at 51½.

SandRidge Energy Inc. was another gainer, as its 7½% notes due 2023 finished 3 points better at 71¾.

The 7½% notes due 2021 were 2 points stronger at 72¾, a trader said.

And, a trader said Goodrich Petroleum Corp.’s 8 7/8% notes due 2019 firmed up “almost 2 points” to 42. In the company’s preferreds, the 10% series C cumulative preferreds (NYSE: GDPPC) were up $1.62, or 20.96%, at $9.35. The 9.75% series D cumulative preferreds (NYSE: GDPPD) gained $1.22, or 15.95%, to end at $8.87.

Arch rises post-earnings

Arch Coal posted a smaller-than-expected quarterly loss on Tuesday, which helped push its bonds – as well as the bonds of its sector peers – into higher territory.

A trader said the 7¼% notes due 2021 and 7% notes due 2019 were both up 2½ points, at 26½ and 26¾, respectively. The 7¼% notes due 2020 jumped almost 4 points to 31¼, he said.

Another trader said the name was “up a couple points,” seeing the 2021 paper 2 points higher around 26.

Among other coal companies, a source pegged Alpha Natural Resources Inc.’s 6¼% notes due 2021 at 26½ bid, up a point.

On an adjusted basis, Arch Coal reported a loss of 37 cents per share, coming in above analysts’ expectations of 38 cents per share.

The narrower loss was attributed in part to a 29% decline in operating costs.

Revenue was up 3.6% at $745.2 million. Analysts polled by Thomson Reuters had projected revenue of $729 million.

Looking into 2015, the coal producer said it was expecting expenses in the Powder River Basin and Appalachian regions to soften during the year, helped by lower diesel prices.

Arch is forecasting that it will sell 130.3 million to 143 million tons of coal during the year, which compared to 134.4 million tons sold in 2014. It also gave an estimated capital budget of $145 million to $160 million.

The company spent $147.2 million in capital improvements in 2014.

Additionally, Arch said it was suspending its dividend as it looks to shore up cash amid weak coal prices.

Cliffs higher despite loss

Cliffs Natural Resources’ bottom line was hurt by an impairment charge in the fourth quarter, but the iron ore producer’s debt was still strong in Tuesday trading.

A trader saw the 4.8% notes due 2020 moving up 1¾ points to 73¼, while the 5.9% notes due 2020 rose 3½ points to 78½.

“That’s a nice little jump,” the trader said.

Another trader said the 3.95% notes due 2018 popped 5 points, closing at 86.

In its earnings release on Monday, the Cleveland-based company said its consolidated revenues fell 15% to $1.3 billion. Despite the big drop, the figure came in above estimates of $1.21 billion given by analysts polled by Thomson Reuters.

Net loss was $1.3 billion, or $8.25 per share. On an adjusted basis, earnings per share was $1.00.

For the same quarter of 2013, the company posted a profit of $30.5 million, or 20 cents per share.

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