U.S. Steel bonds stabilize after earnings miss; Resolute Forest notes bounce from recent lows

By Paul Deckelman

New York, April 28 – Traders in distressed debt issues saw a mostly featureless market on Friday, other than the generally firmer tone carried over from the overall junk bond market.

They said several issues which had recently been under pressure seemed to have stabilized.

One was United States Steel Corp., whose bonds had seen several days of losses after the giant metals processor surprised Wall Street earlier in the week by reporting an adjusted net loss and lowering its full-year guidance.

They also saw some improvement in Resolute Forest Products Inc.’s bonds, which had retreated earlier in the week on the news that the United States plans to slap a hefty tariff on imports of Canadian lumber over Canada’s alleged unfair subsidization of those wood producers, a charge that Canada denies.

Traders also saw upturns in some of the bonds of the beleaguered retailing industry, including PetSmart Inc., Sears Holdings Corp., JC Penney Corp. Inc. and Bon-Ton Department Stores Inc.

U.S. Steel steady

A trader said that U.S. Steel’s 7% notes due 2022 seemed to stabilize on Friday after being pushed lower over the several preceding sessions following the Pittsburgh-based metals giant’s posting of a surprise first-quarter net loss of $180 million stemming from maintenance and mill outage costs and other expenses.

He saw the notes about unchanged Friday at 101 bid.

The notes fell about 5/8 point on Wednesday and another point on Thursday as investors reacted negatively to the numbers.

Other bonds within the capital structure, such as the 7 3/8% notes due 20220 and the 8 3/8% notes due 2021, shared a similar trajectory.

The maintenance and mill outage costs and other expenses more than offset a 16% increase in sales during the quarter to $2.73 billion, although that revenue figure was below the roughly $2.9 billion that Wall Street had been expecting.

On an adjusted basis, excluding unusual or non-recurring items, the company showed 83 cents per share of red ink while that analysts had been expecting it to turn a profit in the 30 to 35 cents per share area.

The company plans temporary shutdowns of some of its aging steel mill facilities this year for maintenance and overhauls, badly needed work that has been delayed for years in some cases.

Anticipating lower production and sales as a result of those shutdowns, U.S. Steel gave out revised guidance looking for full-year net earnings of about $260 million, or $1.50 a share, only around half of its January forecast of $535 million, or $3.08 a share.

Resolute rebounds

Elsewhere, Resolute Forest Products’ 5 7/8% notes due 2023 saw an upturn on Friday after spending most of the week on the downside following the news of U.S. plans to slap a hefty tariff on imports of lumber from Canada.

The Montreal-based wood, paper and pulp producer’s bonds were bouncing off their lows, a trader said, seeing them gain 1 point on the day to end the session at 95 bid.

A trader said those bonds had fallen about a point or two down to lows around 91 bid earlier in the week, then seemed to rebound a little around mid-week, only to retreat again until Friday’s bounce.

They fell after U.S. Commerce Secretary Wilbur Ross said on Monday his agency will impose new anti-subsidy tariffs averaging 20% on Canadian softwood lumber imports – a move that escalates a long-running trade dispute between the two countries.

Canada denies U.S. allegations that it is unfairly subsidizing exports by its lumber producers.

Retailers on the rise

The generally higher junk bond market also lifted the notes of some of the issuers in the retailing sector, which has been struggling of late as traditional brick-and-mortar store chains have seen continued erosion of their sales and profit margins by online retailers, forcing many of the old line storekeepers to announce plans to close underperforming locations.

One such retailer finding itself in such a situation recently and announcing a slate of store closings was JC Penney.

But the Plano, Texas-based department store operator s 7.4% bonds due 2037 were seen having firmed on Friday by around ¼ point to 81 3/8 bid.

A trader saw its 5.65% notes due 2020 about unchanged at 99 1/8 bid.

Elsewhere in the embattled sector, Hoffman Estates, Ill.-based Sears Holdings, operator of the iconic Sears and Kmart store chains, was also seen doing better on the day, its 6 5/8% notes due 2018 up a point on the day to 93 7/8 bid.

York, Pa.-based Bon-Ton Department Stores 8% notes due 2021 moved up to around the 40 bid mark, a market source said, calling that a 3/8 point gain.

San Diego-based specialty retailer PetSmart, whose 7 1/8% notes due 2023 were pushed lower in successive sessions earlier in the week, was one of the most active names in the junk market on Friday, gaining a point to end at 91 bid, with over $15 million traded.

First Energy active

Also up in active trading on Friday was Akron, Ohio-based diversified energy company FirstEnergy Solutions’ 6.85% bonds due 2034.

A trader saw that paper jump by 1 5/8 points on the day to 36 7/8 bid, with over $20 million changing hands.

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