Declining energy prices, upcoming earnings pressure Chesapeake, Consol; steelmakers also fall

By Stephanie N. Rotondo

Seattle, Oct. 26 – Distressed commodity-linked names were getting weighed on amid a decline in energy prices Monday.

Looming earnings were also playing a factor.

“I think people are anticipating some weak steel and coal earnings,” a trader said.

A supply glut in both crude oil and natural gas put pressure on prices Monday, a trend that has been in place for the better part of a year. For its part, natural gas had its biggest one-day plunge since February 2014, due in part to temperatures that are expected to be warmer than average in the coming weeks.

In oil, prices declined to a two-month low.

Those forces – weakening energy prices and upcoming financial results – combined to create a down day for names like Chesapeake Energy Corp.

“They were getting beat up today,” a trader said, pegging the 5¾% notes due 2023 in a 63½ to 64 context. That was down from 67, he said.

The Oklahoma City-based company will release its quarterly results next week.

As for coal, a trader said Consol Energy Inc.’s 5 7/8% notes due 2022 were “active” and down 1½ to 2 points “ahead of earnings.” The trader saw the issue closing around “71-ish.”

The Pittsburgh-based company will release earnings on Tuesday.

Steel names hit too

Also slated for Tuesday are earnings from AK Steel Holdings Corp. The 7 5/8% notes due 2021 were down prior to the numbers, with a trader seeing the notes ending “close to 50.”

Ahead of the financial release, AK Steel’s stock was downgraded by BofA Merrill Lynch, which caused the stock to drop 32 cents, or 12.03%, to $2.34 (NYSE: AKS).

United States Steel Corp.’s equity also “got hit,” according to a trader, though its earnings don’t come out until Nov. 4. The shares fell $1.10, or 9.38%, to $10.63 (NYSE: X).

A trader said the 7 3/8% notes due 2020 declined about 3 points in sympathy, finishing with a 77 handle.

However, a second market source deemed the 7% notes due 2018 1½ points better at 92½ bid.

Valeant loans depressed

Valeant Pharmaceuticals International Inc.’s term loan E and F dropped to 93½ bid, 94½ offered from 94 3/8 bid, 95 1/8 offered during the trading session, according to a trader.

In the morning, the company held a call to address last week’s Citron Research report that accused the company of creating phantom captive pharmacies and invoices to deceive the auditors and book revenue and bringing in to question dealings with Philidor Rx Services LLC.

The Citron report caused the debt to trade off dramatically last week. Prior to the report, the term loan F was quoted in the area of 97¾ bid, 98½ offered.

On Monday’s investor call, Robert Ingram, lead outside director of Valeant, stated that the “audit and risk committee of the board and the full board have reviewed the company’s accounting for the Philidor relationship and have confirmed the appropriateness of the company’s revenue recognition and accounting treatment.”

However, the Laval, Quebec-based specialty pharmaceutical company also said that the board of directors has decided to form an ad hoc committee of the board to review allegations related to the company’s business relationship with Philidor and related matters and that the committee will be chaired by Ingram.

Sara Rosenberg contributed to this review

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