Distressed market mixed as investors digest FOMC; Cliffs up despite earnings miss, stock slide

By Paul Deckelman

New York, April 29 – Traders said there was no clear theme in Wednesday’s distressed market.

They noted the fact that investors in the broader high-yield arena were trying to gauge the impact of the Federal Reserve’s policy-setting Federal Open Market Committee communique, in which the central bank took a dimmer view of the United States labor market and economy; observers said that policy statement suggested the central bank may have to delay a planned interest-rate rise until at least the third quarter, rather than around mid-year.

Among specific credits, the traders said that Cliffs Natural Resources Inc.’s bonds pretty much held in – even though the coal and iron company’s first-quarter results turned out to be a disappointment, causing its shares to slide. The bond investors were said to have focused instead on the good news about an asset sale.

A fall in iron ore prices, meantime, pushed Cliffs sector peer Fortescue Metals Group Ltd.’s new and established bonds lower.

But the sharp slide seen Tuesday in metals name Magnetation LLC’s notes seemed to have run its course by Wednesday.

Oil names like Linn Energy LLC and Energy XXI Ltd. were seen better.

Coal operator Peabody Energy Corp.’s bonds were softer.

In the convertibles market, IGI Laboratories Inc. paper dropped after the pharmaceuticals company’s earnings missed estimates – but those converts were in line on swap.

Fed stills the market

A trader opined that “distressed-wise, there really wasn’t a ton [of things] going on.”

A second trader suggested that the distressed market was taking its cue from the larger overall high-yield market, which other traders called “quiet” and “unfocused” as investors tried to digest the latest news on the economy and potential interest rate changes coming out of the two-day meeting of the Fed’s policy-setting committee.

Cliffs notes do better

Among specific issues, a trader said that he had “seen Cliffs a little more today,” quoting the Cleveland-based iron ore and coal producer’s 7¾% notes due 2020 at 72-74, saying those bonds were “a little bit better,” up 1 point on the day.

“There was not a lot of volume [traded], but I’ve seen them quoted a lot,” he concluded.

Another trader said the unsecured Cliffs bonds were “a little bit better,” seeing its 4.8% notes due 2020 and its 4 7/8% notes due 2021 having moved up to the mid-to high 50s.

He said that “first and second liens were pretty much in a 98-98½ context on the first liens, second liens were trading 72-73 zip code, so the only thing that really bounced was the unsecureds.”

Cliff’s New York Stock Exchange-traded shares slid by 46 cents on Wednesday, or 7.84%, to end at $5.51. Volume of over 20.2 million shares was more than twice the norm.

Although Cliffs reported first-quarter earnings of 2 cents a share, a solid improvement over analysts’ estimates of 19 cents per share of red ink, its revenues of $446 million for the quarter were down 27.5% from the year-ago quarter, and below analysts' estimates of $562.46 million.

But Cliffs gave its investors some encouragement with the news that it had successfully completed the sale of its chromite deposits in northern Ontario to Noront Resources Ltd. The company sold the assets for $27.5 million in cash.

While Cliffs was doing better, another trader said “iron names were a little weaker,” such as the new Fortescue 9¾% notes due 2022. He saw them off ½ point, around 103½ bid.

He said “there was some general market weakness, and iron ore was off over 4%. It hit the 59 level, then took a 4% dive down to ‘56 and change.’ Any iron ore-related names were weaker with that.”Another trader said the new FMGs “were active, it traded down a little bit, I would say mostly in a 103¼-to-103½ context, which is down; they had been up at 104. So that one was a little softer.”

Also among the metals names, a trader said that “Magnetation, which got beat up [yesterday], didn’t trade today. That one got slaughtered yesterday – but there was no real follow-through today.”

Oil firmer, coal softer

Elsewhere, a trader said Peabody Energy’s 10% notes due 2022 “were a little bit softer,” quoting the coal company’s notes around 86¾ bid.

But another trader said that “oil stuff’s a little better, it seems like they’re up 1 point.”

He called Linn Energy “a big name – its 6½% notes due 2019 were at 86½- 87½; that’s where they’ve traded.”

Its 8 5/8% notes due 2020 were up ¼ point at 90¼ bid, on “very active volume.”

Meanwhile, Energy XXI’s 7½%notes due 2021 “had a decent amount of activity today, around $12 million, finishing around 40, up ½ to ¾ point.”

Another trader also said there was some activity in the XXI 7½s, trading right around 40. He called that “basically, for the most part, unchanged.”

“The 8¼s were trading plus or minus 79 – they haven’t traded for a few days,” he said. “There was a little activity in them, but I didn’t see much moving.”

IGI Laboratories trades off

In the convertibles market, IGI Laboratories’ paper was seen down, but in line on swap.

In fact, they fell a whopping 22 points on an outright basis after the Buena, N.J.-based specialty generic pharmaceutical company reported first-quarter revenue that missed estimates. In response, Oppenheimer lowered its rating on the company’s shares to “perform” from “outperform.”

“The IGI 3¾% bonds fell about 22 points on an outright basis to 84.5, but the issue was seen tracking in line on a hedged basis. The bonds were held on about a 65% delta starting out the day,” a trader said.

Late in the session, the bonds were quoted at 84.5 versus an underlying share price of $5.25.

“They are tracking in line,” a trader said.

Nevertheless, the bonds – $144 million of which priced at par back on Dec. 11 – are now in the mid-80s.

They had gotten as high as 108 or 109 prior to the earnings release.

One trader noted that hedged players would likely adjust their deltas after Wednesday’s stock drop, but he didn’t think it was necessary.

Those NYSE-traded shares finally closed at $5.20 – down $2.75, or 34.59%, on the day. Volume of 12.2 million shares was more than 12 times the norm.

Rebecca Melvin contributed to this review.

© 2015 Prospect News.
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