Cengage debt clobbered post-earnings; J.C. Penney declines on poor Q3 results; Exide weakens

By Stephanie N. Rotondo

Phoenix, Nov. 9 - The distressed debt arena was "definitely softer," a trader reported Friday.

Cengage Learning Acquisitions Inc. was the day's "big loser," a trader said, after the company reported "ugly" numbers. Even the bank debt plummeted, dropping as much as 12 to 14 points.

Also on the downside were J.C. Penney Co. Inc.'s bonds. Like Cengage, the retailer also posted "pretty awful numbers."

And, Exide Technologies Inc. followed the trend, declining "a bunch of points" after the company announced it would idle its lead recycling operations in Pennsylvania.

Cengage gets beaten down

Cengage Learning's debt experienced heavy losses in the secondary market on Friday on the back of fiscal first quarters results being announced that showed a year-over-year decline in earnings, revenues and adjusted EBITDA, according to a trader.

The extended term loan was quoted at 76 bid, 78 offered, down from 88 bid, 88½ offered, and the non-extended term loan was quoted at 79½ bid, 81½ offered, down from 93 bid, 93½ offered, the trader said.

The debt was extremely volatile, especially in the morning, with the first levels of the day seen at 80 bid, 82 offered on the extended loan and 82 bid, 84 offered on the non-extended loan. From the open, those levels kept bouncing around with the extended loan getting as low as 72½ bid, 74½ offered and the non-extended loan getting as low as 75½ bid, 761/2, before coming back up, the trader added.

Trading in the bonds was similarly volatile.

One trader said the bonds "got slaughtered," the 11½% notes due 2020 falling to the mid- to high-80s from levels around 104 previously. The 12% notes due 2019 meantime dropped from the mid-80s to the mid-50s.

At another desk, a trader said the debt was "all over the place."

The 11½% notes, he said, spent most of the day trading around 89. However, there was a late-day offer at 86, he noted.

He also saw the 12% notes offered at 54, versus bids around 90 a couple day's prior.

"How do you like that?" he said. "That's a rough one."

And, the 10½% notes due 2015 were offered at 39, down from previous trades around 80.

"So they're off a lot," the trader commented.

For the first quarter of fiscal 2013, Cengage reported net income of $13.2 million, compared to net income of $131.5 million in the prior year.

Revenues for the quarter were $538.3 million, down 22.2% from $691.9 million in the first quarter of fiscal 2012.

And, adjusted EBITDA for the quarter was $233.1 million, down 33.2% from $348.8 million in the previous year.

Cengage is a Stamford, Conn.-based provider of teaching, learning and research services for the academic, professional and library markets.

J.C. Penney's retreats

J.C. Penney also put out dismal earnings on Friday, which put pressure on its bonds.

A trader said the 5.65% notes due 2020 were "fairly active" and down "a couple points," trading in a 90 to 90½ ZIP code.

"I would have thought we'd see more J.C. Penney," another trader said. He called the 7.95% notes due 2017 down 1½ to 2 points at 1013/4, the 5.65% notes a point weaker at 90, the 7.4% notes due 2037 down 3½ points at 90 and the 7 1/8% notes due 2023 down 1½ points at 97.

The report out Friday showed the company's worst decline in same-store sales since the retailer began its new shopping platform - a move away from coupons and sales events.

Same-store sales were down 26.1% in the third quarter. Analysts had expected a decline of 17.9%.

Total sales were down 26.6% at $2.93 billion.

Still, net loss narrowed to $123 million, or 56 cents per share, from $143 million, or 67 cents per share.

Gross margin was 32.5%, versus 37.4% the year before.

"The ever-ebullient and optimistic management points to increased sale productivity in the new shops as a sign that its new strategy will pay off in the long run," wrote Gimme Credit LLC analyst Carol Levenson in an afternoon report. "But in our view it's the new pricing strategy that is dragging [J.C.] Penney down further and further every quarter it remains in place, not the way the stores are arranged."

Exide to idle plant

Exide Technologies' 8 5/8% notes due 2018 were weaker after the battery maker announced its intent to idle its lead recycling operations at its Reading, Pa.-based facility no later than March 31, 2013.

A trader pegged the issue at 78 bid, 79 offered, down from 82.

Another trader placed the notes at 801/2, down from 81½ bid, 82 offered.

The decision to idle the plant was due in part to "the high capital investment needed, due to regulatory requirements, to remain operational in Reading," Paul Hirt, president, said in a statement. Hirt further noted that its internal lead demands" would be met by its other three recycling centers.

About 150 jobs will be impacted by the decision.

Sara Rosenberg contributed to this article

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