Teck Resources debt drops on latest cost-reduction plan; steel names weaken; Kratos flat

By Stephanie N. Rotondo

Seattle, Nov. 18 – Canadian mining company Teck Resources Ltd. was in the news Wednesday after the company announced another round of cost-cutting measures.

As such, distressed debt investors pushed the company’s debt lower.

Among other commodity-related names, Chesapeake Energy Corp. bonds were “still down,” a trader said, even as oil prices rebounded a touch.

The trader called Chesapeake’s 5¾% notes due 2023 off a deuce at 48. The 4 7/8% notes due 2022 meantime weakened 2½ points to 47½.

Another market source placed the 6 5/8% notes due 2020 at 54½, off over 2 points on the day.

California Resources Corp.’s 5½% notes due 2021 were also seen declining, falling “almost 4” [points] to 61, according to a trader.

While Chesapeake and CalRes bonds were down, Linn Energy LLC – which announced a private debt exchange on Friday – was trending mixed.

A trader said the 8 5/8% notes due 2020 improved a point to 24½, while the 6¼% notes due 2019 held steady at 22.

The trader said the 6½% notes due 2019 were also unchanged at 25.

In the steel space, a trader said the sector was “weaker,” seeing U.S. Steel Corp.’s 7 3/8% notes due 2020 falling 4 points to 57.

“[AK Steel Holdings Corp.] continue to dip,” the trader added, calling the 7 5/8% notes due 2020 “down another point” at 46.

However, another trader said AK Steel’s debt was unchanged at 46.

At another desk, U.S. Steel’s 7% notes due 2018 were seen losing 4 points, closing at 73 bid. AK Steel’s 7 5/8% notes were off 5 points at 46 bid.

Teck plans more cost cuts

Teck Resources said late Tuesday that it was taking further measures to reduce costs amid difficult market conditions.

The actions are in addition to steps taken earlier in the year to save money.

On the news, a trader called the 6% notes due 2040 down 2 points at 56, while the 6¼% notes due 2041 slipped almost a point, to 56 as well.

Teck is looking to cut C$650 million from its 2016 spending budget by reducing its capital expenditure budget by C$350 million and cutting operating costs by C$300 million.

Additionally, Teck plans to slash 1,000 jobs and cut its semiannual dividend to C$0.05.

Earlier this year, Teck cut its dividend to C$0.15 from C$0.45 and idled coal-producing operations. In the last year and a half, the company has cut about 2,000 jobs.

The company said its 2016 budget was not yet finalized, adding that more details would come by February 2016.

“Teck Resources’ near-term outlook remains cautious as weak markets for copper, coal and zinc are more than offsetting cost-cutting efforts,” wrote Gimme Credit LLC analyst Evan Mann in a comment released Wednesday afternoon. “While liquidity remains solid, leverage continues to drift upward on adjusted EBITDA weakness and higher debt levels.

“Meanwhile, [Teck] is now split rated with negative outlooks across the board and at heightened risk for further downgrades over the near to intermediate term.”

Kratos steadies

Kratos Defense & Security Solutions’ 7% notes due 2019 were deemed unchanged at 71 on Wednesday.

“I don’t ever see it,” a trader remarked.

On Monday, the bonds dropped to a 65 handle, which compared to levels around 79½ the previous week.

On Nov. 5, the San Diego-based security company reported a loss per share of 2 cents for the quarter, in line with estimates from Zacks. Revenue was $161.7 million, missing forecasts of $175 million.

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