Penney rebounds, PDVSA off on Chavez death; M&A talk boosts CEDC; Hostess tweaks deadline

By Paul Deckelman

New York, March 6 - J.C. Penney & Co. Inc.'s bonds - which got shellacked along with its shares on Tuesday as a major stockholder cuts its exposure to the underachieving retailer - were seen having come back on Wednesday with at least some of its issues notably higher in brisk trading.

Bonds of Petroleos de Venezuela SA were on the slide, as some investors said "adios" to Venezuela's state-run oil monopoly's paper in the wake of Tuesday's announcement that the country's longtime strongman, Hugo Chavez, had died.

Central European Distribution Corp.'s bonds were seen sharply higher, following news reports that the producer of Russia's famous Stolichnaya Vodka is in exploratory talks with Russian financial figures regarding a possible acquisition of the troubled rival vodka distilling company, which faces a looming debt maturity at mid-month that it does not have the funds to pay.

In the bank-debt market, Hostess Snacks was heard to have revised the commitment deadline on its planned $450 million term loan, which will fund the acquisition of the bankrupt baking company's popular Twinkies brand snack cakes and other company brands, as the venerable company winds down its operations and liquidates its various assets.

Real distressed is quiet

] A trader in bonds of distressed companies said that he didn't see much activity in actual distressed credits, such as those of bankrupt or about-to-be bankrupt companies.

With the recent stock market surge, "it's all equities going on these days - equities and high yield," he said, meaning activity in traditional junk credits that are not necessarily distressed as such but which are underperforming relative to their more robust sector peers, most of whom are trading at a premium to par these days.

Penney's bonds pop

For instance, he saw a fair amount of trading in the bonds of retailer J.C. Penney.

"Penney is always a good one," he said. "They've been going on a ride of late."

On Tuesday, those bonds, along with its shares, had fallen on the news that the company's second-largest shareholder, Vornado Realty Trust, had sold about half of its big stake in Penney's following recent disappointing quarterly results.

However, on Wednesday, the trader saw the Plano, Texas-based department store operator's 7 1/8% notes due 2023 ending around 92-93, which he called "a bounce off the bottom," pronouncing those bonds up around 1½ to 2 points, leaning toward the latter.

"It's definitely a well-bid 93," he said, estimating volume of around $20 million.

He also saw Penney's 5¾% notes due 2018 trading in the low 80s, around and 81-82 bid context, also with over $20 million having changed hands. He called the bonds unchanged to up 1 point.

He said that its other issues were "not as active as those two," with its 5.65% notes due 2020 actually down 1 to 2 points, "which doesn't exactly make sense," given the rise in the 2018 and the 2023 bonds. He saw those bonds going home at 77 bid, 78 offered, with between $12 million and $14 million having changed hands.

"The big trades" on Tuesday had gone off in a 78-79 context.

Another trader agreed that Penney "continues to be active," with its 2018, 2020 and 2023 bonds all located near the top of the Junkbondland most-actives list, once split-rated crossover names mostly of interest to high-grade investors like Ford Motor Credit Co., Embarq Corp. and CenturyLink Inc. were factored out.

He said that the 2023 bonds "have actually been moving up," seeing them as high as 93 bid, up from the 91ish area where they had opened.

But he said that "the other bonds seem like they've actually been heavier." He quoted the 2020 bonds trading down at 77 bid at the end of the day, and saw the 2018 notes "active as well," but said that "they traded down to 81, so that's a little lower than they were yesterday [Tuesday]."

"It depends on which flavor you're looking at," he continued. "They were bouncing around."

But he added that there was "not a lot of activity in the longer-dated ones," such as Penney's 6 3/8% bonds due 2036 or its 7.40% long bonds due 2037.

Strictly on a round-lot basis, factoring out the pages and pages of smaller odd-lot trades that showed up on Trace, a market source at another desk noted the 5¾% notes due 2018 edged up maybe ½ point to around the 81 bid area on volume of around $12 million.

He saw $17 million of the 7 1/8% 2023 notes having traded on that basis, with the bonds up 2¼ points to end at 94¼ bid, but said the 5.65% notes due 2020 had fallen more than 2 points on the session to go out at about the 77 level, with about $9 million having changed hands in large-block trades.

Overall, though, the first trader opined that "the bonds are feeling a little better today - the stock is going one way and the bonds the other."

Penney's New York Stock Exchange-traded shares - which had plunged more than 10% on Tuesday on the Vornado news - lost another 53 cents, or 3.54% on Wednesday to close at $14.43. Volume of 31.5 million shares was almost triple the norm.

Chavez death pummels PDVSA

One of the market sources said that Venezuela's state-run oil monopoly, PDVSA, "was the Number 1 trader on Trace today," with literally "hundreds of millions" of dollars worth of its various bonds having traded following the not-unexpected announcement that longtime ruler Chavez had died after a lengthy battle with cancer.

He saw the Caracas-based entity's 8½% notes due 2017 trading at bid levels between 97½ and 981/2. He called that down about a point on the day, adding "and there was huge volume, really active today."

He said "they have about 10 issues, almost all down at least 2 or 2½ points, it looks like."

He pegged PDVSA's 9¾% bonds due 2035 at 97 bid, 98 offered going home, "down a couple of points," while its 9% notes due 2021 were finishing at 95 ¼ bid, 96 ¼ offered, down as much as 3 or 4 points.

Its 5 ¼% notes due 2017 were ending at bid levels between 86 ½ and 87 1/2. At a mid-point bid around 87, they were off by 1 point.

CEDC jumps on interested buyer

A trader said that Central European Distribution Corp.'s 9 1/8% notes due 2016 moved higher, finishing in the high 70s from prior levels in the low-to-mid 70s, "so they've been creeping higher."

Another market source saw the bonds get as good as 79 ½ bid during the session before coming off that peak to close at 77 bid - still a five-point gain from Tuesday's levels - on busy volume of $11 million.

That movement came in the wake of Tuesday's announcement by CEDC rival SPI group that SPI - producer of the famed Solichnaya Vodka - was in talks with Russian financial interests regarding a possible investment in or acquisition of troubled CEDC. The Mt. Laurel N.J.-based CEDC also produces several well-known brands of Russian and Polish vodka.

CEDC is exploring financial alternatives as it approaches a looming March 15 deadline when its $258 million of convertible notes matures. CEDC has already disclosed that it does not have sufficient funds on hand to pay that maturity, absent some kind of a strategic transaction. It last week announced plans to offer new debt and stock to the convertibles holders and the 2016 bond holders in an exchange offer that would be part of a corporate restructuring arrangement.

Arch Coal seen lower

Elsewhere, Arch Coal Inc.'s bonds were a little off, seeming to buck the generally higher junk market trend. A trader saw the St. Louis based coal company's 7% notes due 2019 off ½ point at 87 bid, 88 offered, on volume of $7 million.

Its 7¼% notes due 2021 were likewise seen finishing around 86¼ bid, on more than $8 million of volume.

Hostess tweaks loan deadline

In the bank-debt market, Hostess Snacks revised the commitment deadline on its $450 million seven-year first-lien covenant-light term loan to 3 p.m. ET on Friday from Monday, according to a market source.

The term loan is talked at Libor plus 600 bps to 625 bps with a 1.25% Libor floor and an original issue discount of 981/2, and is non-callable for two years, then at 102 in year three and 101 in year four.

The company's $510 million credit facility also includes a $60 million ABL revolver.

Credit Suisse Securities (USA) LLC and UBS Securities LLC are leading the deal, which will be used to fund the purchase of the baked snack foods business from bankrupt parent company Hostess Brands Inc., an Irving, Texas-based operator of regional bakeries. Closing on the financing is expected by the end of April, subject to approval by the U.S. Bankruptcy Court for the Southern District of New York, and customary conditions.

The team of Apollo Global Management LLC and Metropoulos & Co. emerged as the stalking-horse bidder for the purchase of such iconic Hostess brands as Twinkies and Hostess Cupcakes for $410 million. If other bids are received, an auction is slated for March 13.

Hostess Brands is meantime in the process of parceling out its other assets as the company liquidates its operations under court supervision.

Flowers Foods, Inc. announced last week that its $360 million stalking-horse bid for Hostess' well-known Wonder Bread brand and several other bread lines, including Nature's Pride, Merita, Home Pride and Butternut, was declared the highest bid for those assets, eliminating the need for an auction. Flowers will also get 20 bakeries and 38 depots. The sale hearing is scheduled for March 19.

Meanwhile Mexican banking giant Grupo Bimbo, SAB de CV, via its BBU, Inc. subsidiary, outbid Flowers and was declared the winner of the contest for Hostess' Beefsteak brand assets, which went for $31.9 million. Flowers chose not to increase its initial $30 million stalking-horse bid for was topped by another bidder. That auction was scheduled for March 1, but Flowers said it chose not to increase its bid as would have been necessary to win the Beefsteak auction.

Hostess also recently chose McKee Foods Corp, the maker of Little Debbie snack cakes, as the initial bidder for its Drake's cakes, which include such well-known brands as Ring Dings, Yodels and Devil Dogs. And it chose United States Bakery's subsidiary Mountain States Bakeries LLC unit as the lead bidder for four of its smaller bread brands plus bakeries, equipment and depots. Bids from other potential buyers of either group of assets are due on March 12, with auctions, if needed, scheduled to March 15 and sale hearings on April 9.

Sara Rosenberg contributed to this review

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