J.C. Penney debt decline continues after poor earnings last week; Exide bonds on rollercoaster

By Stephanie N. Rotondo

Phoenix, Nov. 13 - A distressed debt trader said that "a couple of things definitely were feeling on the weaker side" during Tuesday trading.

Take, for instance, J.C. Penney Co. Inc. Last week, the company reported dismal quarterly results, which weighed heavily on the retailer's bonds. That continued to be the case on Tuesday as well, as rating agencies began downgrading the company.

Meanwhile, Exide Technologies Inc. was "on a ride," according to a trader. The battery maker's debt opened lower on the day, though by the end of business the paper was essentially unchanged.

Eastman Kodak Co. was also gyrating a bit, as the company announced a new funding agreement. Initially, the bonds rallied, but fell back by the bell to end unchanged from previous levels.

J.C. Penney remains weak

J.C. Penney's bonds were "under pressure," a trader said Tuesday, following the company's disappointing earnings release on Friday.

The trader called the 7.4% notes due 2037 "down a couple points" at 86, while the 6 7/8% notes due 2015 lost a point to close around 99.

Another trader said the debt "continues to drift some," seeing the 5.65% notes due 2020 dip to levels around 88.

A third market source pegged the 5.65% notes at 88 bid, down 2½ points.

The report out Friday showed the Plano, Texas-based 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.

On Tuesday, Standard & Poor's reacted to the release by cutting its ratings on the company to B- from B+.

The outlook is stable.

Exide takes a ride

Exide Technologies' debt was on a rollercoaster Tuesday, though the bonds managed to rebound by the end of the day.

"Exide got hit and then kind of rebounded," a trader said, seeing the 8 5/8% notes due 2018 hit a low around 77 before coming back to close at 791/4.

Another trader said the issue was "quoted a few points lower" at 76 bid, 78 offered, though he noted that the paper "probably went out around 79, pretty much unchanged."

Late last week, the Milton, Ga.-based battery maker reported a net loss of $13.9 million, or 18 cents per share, on net sales of $712 million for its second quarter. That compared to a loss of $3.6 million, or 5 cents per share, on sales of $773 million.

Additionally, Exide reported that it intended to idle a lead recycling plant in Reading, Pa. no later than March 31, 2013.

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 that came out Thursday. 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.

Kodak lines up new financing

Bankrupt Eastman Kodak announced Tuesday that it had lined up new borrowings of $793 million from a lending group that consisted of Centerbridge Partners, Blackstone Group, J.P. Morgan Chase & Co. and UBS AG.

The new funding could potentially allow the company to emerge from bankruptcy early in 2013.

At first, investors seemed pleased with the deal, pushing the company's 9¾% second-lien notes due 2018 into higher territory. However, those gains did not last.

A trader said that "right out of the gate," the notes traded at 72, which "left bonds for sale." He then saw them offered at 70, but soon trades were taking place in a 67½ to 68½ context.

He quoted the issue at 67 bid, 69 offered by the end of the day.

"There was not a lot of volume, but they were volatile," he said.

Another trader said the debt opened around "71-ish," but closed at 68 bid, 69 offered, unchanged.

A third trader said the debt "initially rallied" up to 72, but came back to end around 68.

The reason for the rally and then slide back down was likely due to a contingency of the new funding: that Kodak must sell its patent portfolio for more than $500 million. The company has been attempting to sell off the asset for over a year, with little luck.

"If they had had that type of bid, they would have already done it," a trader said, referring to the company's mid-September announcement that it would put off an auction of the portfolio indefinitely, after failing to get the kinds of bids it was seeking. Kodak never publicly offered the amounts of bids or who the bidders were, but rumors were that none of the bids were above $100 million.

Aside from the patent sale, there were other issues to make investors nervous, according to a trader.

"People are worried that if they are not part of this group that is providing the financing, then the remaining second-liens will get primed," he said. That would result in the second-liens being classified lower in the overall capital structure.

"Others say the new loan could take the debt out entirely at par," the trader noted. However, "the market thinks differently," he remarked, pointing to the bond's Tuesday performance.

AMR rises on pilots contract

AMR Corp., the bankrupt Forth Worth, Texas-based parent of American Airlines, reportedly has reached a deal in principle with its pilots union, which gave the bonds a boost.

A trader called the benchmark 6¼% convertible notes due 2014 up half a point to a point at 69 bid, 70 offered.

The pilots have yet to vote on the deal, which was deemed "an industry standard contract while enabling American Airlines to complete a successful restructuring and compete on a level playing field with its network-carrier peers," according to a statement by the Allied Pilots Association. The potential agreement is also considered to be one fewer hurdle that any potential merger partner would have to get over.

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