Distressed debt rattled, follows broad market; Walter Energy earnings disappoint, bonds weaken

By Stephanie N. Rotondo

Phoenix, July 31 – The distressed debt market was “getting tagged,” a trader said Thursday, as an Argentinean default and ongoing tensions in Russia worried investors.

For its part, the Dow Jones industrial index was down 317 points on the day, erasing all of the gains incurred thus far in 2014.

“Down, down and more down,” a trader said.

Walter Energy Inc. debt was “one of the more active of the downtrodden,” according to a trader. The company reported earnings that mostly fell short of expectations. Walter also lowered its 2014 projections.

The quarterly report combined with a broader market already under pressure led the bonds to decline by over 5 points on the day.

Even without news to act as a driver, many distressed names struggled during the session.

Caesars Entertainment Corp.’s 10% notes due 2018 fell over 2 points to 32½, a trader said. The 10¾% notes due 2016 meantime dove down 6 points to 63½, though the trader noted that the closing level was up from the day’s low around 60.

Colt Defense LLC’s 8¾% notes due 2017 were also beaten down, declining 2¼ points to 79.

And, 21st Century Oncology Inc.’s 9 7/8% notes due 2017 came in 1½ points to 83½.

That issue had been driving higher for the last few sessions on word the company had inked a recapitalization support deal with bondholders.

Walter’s loss widens

Walter Energy released second-quarter earnings before the market opened on Thursday. The results failed to assure investors and, when combined with the weaker tone of the broad markets, created sizable losses for the company’s bonds.

A trader said the 11% PIK toggle notes due 2020 declined “just about 5 points” to 72. Another market source pegged the notes at 71 bid, 71¾ offered, down from 77 bid, 77¼ offered.

For the quarter, the Birmingham, Ala.-based metallurgical coal producer reported consolidated revenues of $378.4 million, down from $441.5 million the year before. According to company management, continued low prices for coal was the main driver, as it did experience higher sales volume during the quarter.

Net loss was $151.4 million, or $2.33 per share. That compared to a loos of $34.5 million, or 55 cents per share, for the same quarter of 2013.

Excluding certain items, the adjusted loss was $128.3 million, or $1.97 per share.

Analysts polled by Bloomberg were expecting an adjusted loss of $1.69 per share on revenues of $376.6 million.

For the whole of 214, Walter Energy expects to produce 9 million to 10 million metric tons of coal. However, the company lowered its sales forecast to 9.5 million to 10.5 million tons, versus a previous estimate of 10.5 million to 11.5 million.

Elsewhere in the coal space, Arch Coal Inc.’s bonds were weakening during the session – possibly in sympathy with its sector peer and the market as a whole, given that the company’s own earnings release on Tuesday showed signs of improvement.

A trader saw the 7¼% notes due 2021 at 64, down 3 points. Both the 7% notes due 2019 and the 7¼% notes due 2020 ended at 66½, off 4 and 3 points, respectively.

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