Energy sector bonds finish higher on oil price rebound; Alpha Natural debt weakens on earnings

By Stephanie N. Rotondo

Phoenix, Feb. 13 – The distressed debt market ended on a high note Friday, following a trend set by the equity markets – the S&P 500 even closed at an all-time high.

With the broad market gains, oil prices also had another good day.

West Texas Intermediate crude rose $1.33, or 2.6%, to $52.54 a barrel, while Brent crude jumped $2.08, or 3.51%, to $61.36 – the first time the commodity has traded over $60 in months.

As has been the case of late, the oil price gain encouraged investors to focus on the energy space, which also ended with a mostly firm tone.

Petroleos de Venezuela SA again topped the day’s high-yield activity list, according to a trader, with the bonds rising as much as 2 points on the day.

The 6% notes due 2026 gained over half a point, closing at 34¼ and the 6% notes due 2024 increased almost a point to 35.

Both the 5¼% notes due 2017 and the 9% notes due 2021 improved a deuce to 47¼ and 42, respectively.

Linn Energy LLC’s 6¼% notes due 2019 were also higher, rising over half a point to 85¼.

There were a handful of issues, however, that finished the session softer.

Swift Energy Co.’s 7 7/8% notes due 2022 dipped half a point to 47, while the 8 7/8% notes due 2020 slipped the same amount to 47¼.

Alpha weakens, Arch rises

Away from the oil and gas sector, coal names remained busy as investors continued to react to Alpha Natural Resources Inc.’s earnings, which came out Thursday.

A trader said the 9¾% notes due 2019 fell half a point to 39½. He saw the 6¼% notes due 2021 declining a quarter-point to 26¼.

But while Alpha Natural debt was down, Arch Coal Inc. paper continued to gain ground.

The 7% notes due 2019 closed a point better at 28½, as the 8% notes due 2019 improved 1¼ points to 46, according to a trader.

For the quarter, Bristol, Va.-based Alpha Natural reported a net loss of $121.7 million, or 55 cents per share. That compared to a loss of $358.8 million, or $1.62 per share, a year earlier.

Excluding certain items, loss per share was 50 cents. On average, analysts polled by Thomson Reuters were predicting a loss of 71 cents per share.

Revenue was down 2.1% at $1.07, beating estimates of $985.4 million.

The narrower loss was attributed in large part to cost-cutting efforts. Total costs during the quarter declined 9% to $1.17 billion.

Following in line with its peers, Alpha Natural also said it cut its 2015 capital expenditure budget to $225 million to $275 million from $275 million to $350 million.

Alliance rebound continues

Alliance One International Inc.’s 9 7/8% notes due 2021 continued to rebound in Friday trading, after getting beaten down earlier in the week on weak earnings.

The notes were pegged in an 80 to 80¼ context, up a point.

On Tuesday, investors had weighed down the company’s debt following an earnings release on Monday and a conference call on Tuesday.

But since then, the debt has been rebounding.

For the fiscal third quarter, the Morrisville, N.C.-based tobacco leaf distributor posted sales of $488.9 million, a decline of 25.3%.

The company attributed the decrease to a 21.9% reduction in the amount of full service volumes sold due to deconsolidation of a Brazilian subsidiary, a delayed shipment, less favorable weather conditions and a global oversupply of tobacco.

Gross profit as a percentage of sales was 14.3%, up from 12.8% the year before.

Pretax income came to $11.4 million. Total net income was $1.4 million, or 2 cents per share.

That compared to income of $13.3 million, or 15 cents per share, the year before.

Come Friday, Moody’s Investors Service downgraded the company to Caa1 from B3.

The senior secured second-lien notes were also cut to Caa2 from Caa1.

The ratings agency said the downgrade was attributed to the belief that metrics would remain weak for the next 12 months to 18 months.

© 2015 Prospect News.
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