Distressed bonds trade lower ahead of Fed; AK Steel paper remains strong, company plans tender offer

By Stephanie N. Rotondo

Seattle, June 13 – The distressed debt market started the week off with a softer tone, according to market sources.

“It felt like a lot of things backed up today,” a trader said Monday.

The trader also noted that activity was muted, as distressed bonds were thrown over in favor of new high-yield issues.

Monday’s subdued trading comes ahead of the Federal Reserve’s policy meeting later this week. The market is waiting to see if the central bank will opt to raise interest rates this month, or if they will put the hike off until July or later.

The market is also waiting to see if the United Kingdom will opt to leave the European Union in an upcoming referendum vote on June 23. Chatter is that the so-called “Brexit” is troubling the markets more than the possible rate increase or even the looming U.S. presidential election.

As for the day’s dealings, AK Steel Holdings Corp.’s debt was again “pushing higher,” a trader said. The steelmaker announced a tender offer for its 8¾% notes due 2018 on Monday, which will be paid for by a $380 million offering of seven-year secured notes.

Pricing for the new issue is expected on Tuesday.

Meanwhile, names like Chemours Co. and Intelsat SA were “definitely lower,” a trader said.

Chemours’ 7% notes due 2025 were seen falling a point to 81½. The name has been under pressure since earlier this month, when Citron Research said in a report that the chemical manufacturer spun-off from DuPont was facing an imminent bankruptcy.

Intelsat’s 8% senior secured notes due 2024 were meantime off about a point as well, trading in a par ½ to 101 context.

“Maybe they are weaker because [the company is] going to be coming to market at some point to fund that tender deal that’s out there,” a trader speculated.

AK Steel stays strong

AK Steel bonds remained on an upward track in Monday trading, according to market sources.

One trader called the 7 5/8% notes due 2020 up 2 to 3 points, trading “around 89.” At another shop, the issue was seen rising 3 points to 89¾ bid.

On Monday, the West Chester, Ohio-based company said it was tendering for its 8¾% senior secured notes due 2018. Holders who participate in the all-cash exchange will receive $1,047.50 for each $1,000 of notes.

Those who do not participate in the tender will have their holdings “promptly” redeemed, the company said.

But holders have a short turnaround in which to participate, as the offer expires at 5 p.m. ET on Friday.

AK Steel plans to fund the tender, at least in part, with proceeds from a $380 million offering of senior secured notes due 2023. Initial price talk places the yield in a mid- to high-7% range.

Pricing on the deal is expected Tuesday.

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