AK Steel's 2025 Bonds Provide 10% Yield To Maturity

AK Steel (AKS) stock has rallied 10% this week after the steelmaker beat earnings expectations and shook off a Morgan Stanley downgrade. The company’s bonds also rallied, especially on the short maturity end. The 2021 maturing notes, which I highlighted last month, have seen a 10% price increase and yield to maturity decline of over 300 basis points. The company’s 2025 maturing bonds, however, have edged up slightly. Priced at 82 cents on the dollar, the bonds offer a yield to maturity of slightly over 10% when combined with a 6.375% coupon rate. With an updated outlook based on the fourth-quarter financials, I believe investing in longer-term debt may be beneficial to high-yield investors.
Source: FINRA
AK Steel’s 2025 bonds sit near the long end of the company’s debt maturity profile. They do, however, provide the second-best yield, slightly lower than the company’s 2027 maturing debt. The 2025 bonds are yielding more than 270 basis points higher than the benchmark for B rated corporate bonds. This makes the 2025 bonds more attractive versus their peers.
Sources: FINRA; AKS bond results search.
These high yield bonds are not good investments if AK Steel’s financial performance and outlook do not demonstrate the company’s ability to sustain its current debt load. From a profit and loss standpoint, AK Steel showed improvements across all major performance indicators in 2018. The steelmaker saw a more than 10% annual... Read more

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