AK Steel debt pushes up on bullish Credit Suisse report; Caesars Entertainment’s bonds climb higher

By Stephanie N. Rotondo

Seattle, June 8 – The midweek trading session saw the distressed debt market posting more gains for the week.

In the commodity arena, AK Steel Holdings Corp. bonds were trading better, as Credit Suisse analysts released a bullish report Wednesday morning. In the report, the investment bank projected that steel prices would continue to gain ground, which would in turn help AK Steel’s bottom line.

Meanwhile, debt linked to Caesars Entertainment Corp.’s bankrupt Caesars Entertainment Operating Co. unit continued to rise. The paper began to trade up on Tuesday after the judge overseeing the Chapter 11 case said there might be little he could do to ebb bondholder lawsuits against the parent company.

On Wednesday, the Las Vegas-based casino operator announced that it had inked two restructuring support agreements with some bondholders. Under the agreements, the bondholders agree to stay their lawsuits.

AK Steel sizzles

AK Steel bonds were edging higher Wednesday – along with its equity – as Credit Suisse released a positive report on the steel space.

One trader said the 7 5/8% notes due 2020 were up 3 points at 83½, while the 7 5/8% notes due 2021 improved half a point to 79.

He also saw the 8 3/8% notes due 2022 rising a point to 78.

At another desk, the 2020 paper was seen at 83½ bid, up 2½ points on the day.

As for the equity (NYSE: AKS), it was up 77 cents, or 16.81%, at $5.35.

In a report published Wednesday morning, Credit Suisse analyst Curt Woodworth said that based on its latest supply-demand models, there was support for steel prices to increase “well above fair value levels.” He estimated that AK Steel in particular would see a $70 per ton increase for its 2017 contracts, which would raise EBITDA by about $280 million.

Woodworth also noted that previous concerns about liquidity were waning, given the company’s equity offering back in April. The sale brought in approximately $229 million, which was used to reduce outstanding borrowings under a $1.5 billion asset-based revolving credit facility.

Caesars on the rise

Investors continued to push up Caesars Entertainment’s opco bonds on Wednesday.

A trader said the 10% notes due 2018 jumped a deuce to close at 39. Another market source placed the issue at 39½ bid, also 2 points better.

On Tuesday, U.S. Bankruptcy Court Judge A. Benjamin Goldgar told Caesars that he might have little control over pending lawsuits against the bankrupt opco’s parent, given that judges in those cases already have enough information to issue a ruling.

The parent had been seeking a stay on the proceedings, brought by bondholders who allege that the company stripped the operating company of assets and ultimately placed it in bankruptcy.

The parent had also noted that the $4 billion it had agreed to provide to the opco to reorganize might be pulled if a stay was not granted.

However, come Wednesday, some bondholders had agreed to put their lawsuits on the backburner, signing a restructuring support agreement on a plan that would give said holders a portion of $116.81 million of new convertible notes and just over 4% of new equity in the reorganized company.

Additionally, the parent and the opco inked a deal in which the parent agreed to contribute to the restructuring effort. For its part, the opco agreed to do what it could to obtain an injunction on the aforementioned lawsuits by no later than June 15.

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