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(Bloomberg) — Morgan Stanley’s credit trading desk is pitching a bet against bonds issued by Kronos Worldwide Inc, a titanium-dioxide manufacturer that was already struggling before the war in Iran sent energy costs soaring.
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The traders started pushing the short on the US-headquartered firm’s €426 million ($494 million) notes due in March 2029 to investors last month, according to people familiar with the matter. The desk has since reiterated its view, even as the bond price tumbled, the people said, requesting anonymity to discuss a private matter.
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The debt is issued by Kronos International, a wholly owned subsidiary of Kronos Worldwide.
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A spokesperson for Morgan Stanley declined to comment. Spokespeople for Kronos did not respond to requests for comment.
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Even before the turmoil in the Middle East drove up energy prices, chemicals firms were wrestling with softening demand, competition from China and high input costs for the energy-intensive industry. That’s made them a favorite target with short sellers, with Jim Ratcliffe’s Ineos a high-profile example.
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Iran War Is Yet Another Blow to Europe’s Industrial Backbone
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In a short trade, an investor borrows the bonds and sells them, hoping their price will fall. If the price drops, they buy them back more cheaply, return them, and keep the difference as profit.
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Kronos’s notes dropped more than five cents on the euro between late February and early March after S&P Global Ratings downgraded the issuer’s credit rating to CCC+. S&P warned the company’s capital structure could become unsustainable as the firm’s leverage rises and earnings weaken.
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The bonds are currently quoted around 82.6 cents on the euro, according to price data compiled by Bloomberg.
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Kronos cited high costs and lower selling prices for its titanium dioxide — used for pigments in paint, plastics and other products — in a report on Monday, explaining its fourth-quarter loss of $82.8 million. That pushed the company’s loss for the full year to $110.9 million, it said.
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Shares in Kronos are down around 16% since mid-February at $5.60, but are still up on the start of the year.
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