Weak earnings, market conditions weigh on U.S. Steel, AK Steel; Sprint remains strong; JBS rallies

By Stephanie N. Rotondo

Seattle, Jan. 27 – Earnings and the latest announcement from the Federal Reserve put pressure on distressed bonds on Wednesday, though overall liquidity was limited.

“It was a lackluster day,” a trader said. “Everyone was waiting on the Fed and then markets got hit. But volume was low.”

The central bank said Wednesday that it would keep interest rates steady for the time being, after raising rates for the first time since the financial crisis in December. However, the Fed said it would continue to monitor economic growth – both foreign and domestic – and that a March hike was still possible.

In earnings news, United States Steel Corp. released its fourth-quarter results late Tuesday, showing its third-largest quarterly loss. The steel producer also warned that its cash burn could continue through 2016.

On the heels of the news, the bonds took a hit. Fellow steelmaker AK Steel Holdings Corp. also saw its debt drop.

For its part, AK Steel put out its earnings before the market closed on Tuesday. Revenue and adjusted earnings beat estimates, though the company swung to a loss from the year before.

Meanwhile, Sprint Corp. paper continued its rebound in the wake of its own earnings release on Tuesday. The bonds had gotten hammered in the previous week on concerns that figures would be dismal, but a gain in subscribers seemed to encourage investors.

Also rising were JBS SA’s bonds, which took a dive on Tuesday after it was reported that company executives were being accused of wrongdoing.

There was no further word on the debacle on Wednesday that might have caused the rally.

U.S. Steel hammered

U.S. Steel paper “got clobbered” after it released its latest quarterly results, a trader said.

The trader said the 6.05% notes due 2017 fell to 74½ from 82. He noted that the paper was lower intraday, slipping as low as 72¾.

The 6 7/8% notes due 2021 were meantime down 4½ points at 40, while the 7½% notes due 2022 dipped just a quarter-point to 46½.

For the quarter, the Pittsburgh-based company posted a net loss of $999 million, versus a profit of $275 million the year before. Excluding certain one-time items, the loss was 23 cents per share – better than the 85-cent per share loss analysts polled by Bloomberg had predicted.

Sales declined 37% to $2.57 billion.

The company cut its debt burden by $380 million in 2015. Liquidity at the end of the year was $2.38 billion.

As the price of steel has remained depressed amid a supply glut, the company warned that more pain could be felt in 2016. As such, the company is expecting to burn through at least $200 million in cash this year, assuming market conditions do not improve.

Other steelmakers have also been under pressure. AK Steel, for instance, said in its earnings release – out early Tuesday – that it had swung to a loss, though its revenue and adjusted earnings beat expectations.

A trader said AK’s 7 5/8% notes due 2021 dropped 6 points on the day to 32½. The 8¾% notes due 2018, however, were unchanged at 86.

AK Steel posted a net loss of $147.1 million, or 83 cents a share. By comparison, the company reported a profit of $13.5 million, or 7 cents per share, the year before.

On an adjusted basis, EPS came to a profit of 30 cents per share. Analysts polled by Thomson Reuters had forecast 1 cent per share.

Sales meantime declined 23% to $1.54 billion. That figure was still better than analysts’ projections of $1.5 billion.

Shipments fell to 1.66 million tons, down from 2.01 million tons shipped in the third quarter.

Evan Mann, an analyst with Gimme Credit LLC, noted that free cash flow was positive for the quarter at $101 million, which compared to a $504 million shortfall the previous year.

However, Mann noted in his afternoon comment published Tuesday that the cash flow was “short of our $195 million forecast.”

More action in Sprint

Sprint bonds were “stable at the least,” a trader said, after earnings out Tuesday seemed to put investors more at ease with the company’s turnaround plan.

The trader also noted that the name continued to be among the most actively traded.

The trader said both the 7% notes due 2020 and the 6% notes due 2022 inched up a quarter-point to 71¼ and 65 ¼, respectively. The 6 7/8% notes due 2028 were steady at 63¼, as the 7 1/8% notes due 2024 slipped a quarter-point to 65¼.

On Tuesday, the Overland Park, Kan.-based wireless telecommunications provider reported a net loss of $836 million, or 21 cents per share. That compared to a loss of $2.38 billion, or 60 cents per share, the year before.

Analysts had forecast a loss of 25 cents per share.

Revenue declined 9.7% to $8.11 billion, missing estimates of $8.23 billion.

Over 500,000 net postpaid subscribers were added during the quarter, up from a gain of 30,000 the year before. However, analysts polled by FactSet were hoping for an add of 510,000 customers.

Looking toward its full fiscal year, Sprint reversed its forecast, upping its adjusted EBITDA guidance to $7.7 billion to $8 billion from $6.8 billion to $7.1 billion. Operating income is expected to be in a range of $100 million to $300 million, versus previous estimates of a $50 million to $250 million loss.

JBS rebounds

After getting beat down about 10 points in the previous session, JBS paper rebounded in midweek trading.

A trader saw the 7¼% notes due 2024 rising over a point to 81½. The 5 7/8% notes due 2024 were 2½ points better at 81½ and the 7¾% notes due 2020 inched up a quarter-point to 89¾.

On Tuesday, the bonds plummeted after it was reported that Brazilian prosecutors in Sao Paulo had accused nine people from JBS and Banco Rural SA – which was liquidated in 2013 by Brazil’s central bank – were accused of wrongdoing involved with loans totaling about $20 million that were made in 2011. One such person was Joesley Batista, chairman of JBS.

Details of the accusations were not given due to court regulations.

Verso firms

Verso Paper Corp.’s 11¾% notes due 2019 gained a deuce on Wednesday, closing at 15½, according to a trader.

The notes are trading flat, or without accrued interest, given the Memphis-based papermaker’s bankruptcy filing on Tuesday.

On Wednesday, the company said it had inked a restructuring support agreement with creditors holding a majority of funded debt in the company and its subsidiaries. Under the terms of the deal, about $2.4 billion in debt will be wiped out and creditors of funded debt will receive nearly all of the equity in the reorganized company.

Centerbridge Partners and Oaktree Capital Management are among said creditors.

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