Matthew Mark’s Jet Capital Investors has filed a Schedule 13D with the Securities and Exchange Commission indicating it has trimmed its stake in SunCoke Energy Inc. (NYSE:SXC) by 2.36 million shares since its most recent 13F filing. According to this freshly-amended filing, Jet Capital Investors currently owns 1.76 million shares in the producer of metallurgical coke, which represents 2.7% of the company’s outstanding common stock. This move might come as a result of the fund’s discontent about the lack of action by the company in creating shareholder value in spite of clear alternatives within management’s control. In February, Jet Capital Investors sent a letter to SunCoke’s management that points out some strategic actions that the company could implement in order to create shareholder value; however, the company’s response was continued inaction, which led to a further decline in its share price (see more details).
Jet Capital Investors LP is a New York-based hedge fund established by Matthew Mark in 2002. The investment firm is primarily implementing merger arbitrage, capital structure arbitrage, and event-oriented trading strategies in investing its capital in the public equity and fixed income markets around the world. Jet Capital Investors currently has $2.4 billion in assets under management, which grants it the title of a large investment firm with over $1 billion in assets. The public equity portfolio managed by Matthew Mark and his team consists of nearly 50 active positions as of March 31, while the market value of these positions at the time came to $3.32 billion. At the same time, the hedge fund manages a relatively diversified public equity portfolio, with its holdings dispersed across the following sectors: 29.68% in the services sector, 23.47% in the utilities sector, and 10.87% and 7.56% in the healthcare and capital goods sectors, respectively.
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SunCoke Energy Inc. (NYSE:SXC) is a producer and supplier of high-quality coke to the integrated steel industry under long-term take-or-pay coke contracts. The company has gained the position of being the largest independent producer of metallurgical coke in both North America and South America, operating in this industry for over 45 years. SunCoke Energy mines metallurgical coal in underground and surface mines and operates a number of coke making facilities in the U.S. and Brazil. In addition to that, SunCoke Energy is the sponsor of SunCoke Energy Partners L.P. (NYSE:SXCP), a publicly traded master limited partnership, with 2% general partner interest, 56% limited partnership interest, and all of the incentive distribution rights.
This MPL was intended to enhance the value of SunCoke Energy’s business and provide the company additional financial flexibility. However, it seems that the company has not been quite successful in delivering value for shareholders through the aforementioned MLP. To be more specific, the management of SunCoke has been criticized for not being able to use its general partner structure, which assumes the role of overseeing the MPL’s operations, to create value. As a result, Matthew Mark’s Jet Capital Investors suggested SunCoke consider alternative means of selling the company to a third party that will allow it to unlock shareholder value from its role as a general partner of SunCoke Energy Partners. Matthew Mark also pointed out that the management of SunCoke has been sluggish in dropping down its assets to the MPL due to different views of the two entities on the fair value of SunCoke’s coke assets. Therefore, the slow pace of the dropdowns has had a negative impact on the share prices of both SunCoke and its MLP. To sum up, SunCoke has been facing struggles recently, while Jet Capital Investors has pinpointed these issues and has publicly divulged the steps SunCoke should follow in order to get back on track. Therefore, the future performance of SunCoke Energy is within its control, so sooner or later the necessary steps may be completed and the stock might achieve its much needed turnaround.
The fact that SunCoke Energy has entered choppy waters is also reflected in its financial performance. The company reported a loss of $13.5 million or $0.21 per share for the second quarter of 2015 that ended June 30, compared to a net loss of $49.2 million or $0.71 per share reported in the same quarter a year ago. SunCoke Energy also reported adjusted EBITDA of $33.4 million, declining by $27.4 million year-over-year. At the same time, the company’s revenues declined by $24.0 million year-over-year to a figure of $348.2 million. The analysts’ expectations on the company’s earnings and revenues figures have not been reached as well, which indicates that SunCoke has been underperforming in the eyes of outside observers. However, appropriate changes within the company’s strategic direction might put the company back on track. It is worth mentioning that the shares of SunCoke decreased by over 36% year-to-date. Within our database, Richard Rubin’s Hawkeye Capital is among the largest investors in SunCoke Energy Inc. (NYSE:SXC), holding nearly 2.71 million shares as of March 31.
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