J.C. Penney up on Morgan note, awaited numbers; ANR to bring new deal; NII struggles anew

By Paul Deckelman

New York, May 12 - Traders said that the distressed-debt world, as well as the overall high-yield secondary market, had a firmer tone to it on Monday, although new-issue activity continued to dominate dealings.

Traders saw gains in J.C. Penney Co. Inc.'s bonds, along with its equity, as investors geared up for the department store operator's Thursday report of first-quarter earnings. Wall Street is looking for Penney to report its ninth consecutive quarterly loss, although analysts think it will be an improvement over the year-ago red-ink bath the company took, and they also anticipate better revenue numbers.

J.C. Penney was further helped by a cautiously optimistic research note about the company from J.P. Morgan Securities LLC.

There was also some activity in the bonds for fellow retailers Toys "R" Us, Inc. and Sears Holdings Corp.

In the coal space, Alpha Natural Resources Inc. announced plans for a new $400 million bond deal. Its existing paper meantime firmed, along with its shares, on a positive coal market assessment by Morgan Stanley & Co. Inc. Sector peer Peabody Energy Corp.'s bonds were mixed, though.

NII Holdings, Inc.'s bonds were in retreat, as the international wireless service provider reported disappointing quarterly numbers. And despite company executives to put a positive face on its results, the company revealed that it may not meet obligations past early 2015 amid liquidity and loan woes.

J.C. Penney bonds pop

A trader said that J.C. Penney 's bonds were better "across the board," seeing the underperforming Plano, Texas-based department store operator's 5¾% notes due 2018 up by several points at 86¾ bid.

He likewise saw its 5.65% notes due 2020 a few points higher at 81¼ bid.

At another desk, the 5.65s were quoted at that same 81¼ bid level and were seen up 2 points on the session.

The first trader said that he saw no real news out on the company, other than the scheduled release of first-quarter earnings late in the day on Thursday.

Analysts expect J.C. Penney to post a loss of about $1.25 per share for the first quarter ended March 31, a narrower loss than the year-earlier $1.38 per share, although the company is still hemorrhaging money.

Wall Street is also looking for revenues for the quarter to improve to about $2.7 billion from $2.6 billion a year ago.

J.C. Penney's bonds and shares may have also been helped by a mildly positive research note from J.P. Morgan, which kept its "neutral" rating on the retailer's stock.

The company's New York Stock Exchange-traded shares rose by 38 cents, or 4.32%, to end at $9.18. Volume of 34.5 million shares was running about 50% above normal.

Elsewhere among the retailers, Toys 'r' Us' 7 3/8% notes due 2018 were seen by a trader having fallen 1 point, to around 70 bid .

But the Wayne, N.J.-based toy and game retailer's 10 3/8% notes due 2017 rose¾ point to end at 80½ bid, on no fresh news.

Hoffman Estates, Ill.-based Sears' 6 5/8% notes due 2018 were seen byu a market source little changed at 93½ bid, although more than $7 million changed hands.

Alpha slates deal

In the volatile coal space, Alpha Natural Resources announced plans for a $400 million offering of senior secured second-lien notes due 2020. The Bristol, Va.-based coal company plans to use the net proceeds of that deal to repay existing debt.

That was just one piece of news seen out on Alpha on Monday.

In the convertibles market, the company's 4.875% converts due 2020 were seen a little bit better on swap on Monday by about 0.5 point, a Connecticut-based trader said.

Alpha's shares jumped - along with the coal sector in general -- after a positive note by Morgan Stanley analysts that predicted metallurgical coal prices have bottomed and thermal coal could recover sooner than expected following this past winter's prolonged frigid temperatures that raised heating demand.

Alpha's 4.875% convertibles traded at 84 versus an underlying share price of $4.55.

On a delta of about 70%, the bonds were about 0.5 point better on swap.

These bonds are quoted pretty frequently, he said. But overall the market has been quiet

"On a dollar-neutral basis, we are not seeing things moving around much."

Alpha shares jumped 25 cents, or 5.8%, $4.54.

Sector peer Peabody Energy's 4.75% convertibles due 2066 traded at 80 early Monday, which was little changed from previous levels, according to Trace data.

A trader said that he didn't see the Peabody convertibles in trade. Morgan Stanley boosted its rating on the St Louis-based coal producer's shares to "overweight" from "equal weight" and raised its stock-price target to $30 from $20 But Peabody shares pared early gains ending up only 45 cents, or 2.4%, to $19.11.

Peabody's bonds were meantime mixed; a junk market source callings its 6½% notes due 2020 up ½ of a point at 105¼ bid, while its 6¼% notes due 2021 were seen down 1 1/8 of a point at just above 101 bid.

NII notes lower

A trader saw NII Capital Corp.'s 10% notes due 2016 lose nearly 1½ points, to close at 34½ bid.

That followed the release of the Reston Va.-based wireless service company's quarterly results and its conference call.

Although executives said they saw signs of progress and said the company has ample liquidity for the short-term, NII revealed in its 10-Q filed Monday with the Securities and Exchange Commission that it does not expect to generate enough growth in its operating revenue and operating cash flows to meet its obligations beyond early 2015 absent changes to its outlook.

In addition, because of the combined impact of its recent and projected results of operations, non-investment-grade credit rating, the inclusion of the going concern statement in its 10-K, restrictions in its current debt and/or general conditions in the financial and credit markets, NII said the cost of any funding could be both significant and higher than the cost of its existing financing arrangements.

Rebecca Melvin, Caroline Salls and Lisa Kerner contributed to this review

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