Overseas Shipholding steadies post-earnings; J.C. Penney downgraded by Fitch, bonds lower

By Stephanie N. Rotondo

Phoenix, Oct. 2 - It was a quiet but somewhat firm day for the distressed debt market on Wednesday as a partial government shutdown continued to keep investors on the sidelines.

"Everyone is trying to keep things close to the vest with the government shutdown going on," a trader said.

The trader also noted that there were a few finance conferences going on, including Deutsche Bank's Leveraged Finance Conference in Scottsdale, Ariz.

Overseas Shipholding Group Inc.'s debt was steady in midweek trading, but a trader said the bonds had been on the decline for the last few sessions. The bankrupt company reported earnings for the period ended March 31 on Monday.

J.C. Penney Co. Inc., however, saw its debt dipping on the back of a rating downgrade from Fitch Ratings.

OSG finds equilibrium

A trader said Overseas Shipholding Group's 8 1/8% notes due 2018 were "down a few [points]" in the last few trading days, though he saw the bonds holding in around 86 on Wednesday.

On Monday, the bankrupt New York-based company filed a 10-Q with the Securities and Exchange Commission for the period ended March 31. The report had been delayed due to an inquiry into an understatement of federal income tax payments and its provision for income taxes.

For the quarter, the company posted assets of $4.03 billion and liabilities of $3.66 billion.

Shipping revenues fell to $247.44 million from $292.38 million the year before.

All told, the company reported a net loss of $167.76 million, compared to $36.86 million the year before.

J.C. Penney under pressure

J.C. Penney bonds were deemed "weaker" by a trader on Wednesday, as Fitch lowered its rating on the struggling Plano, Texas-based department store retailer.

The trader pegged the 7.95% notes due 2017 in an 84 to 85 context.

Another trader called that issue a point lower at 841/4, while the 7.65% notes due 2016 dropped over a point to 85.

Fitch said it revised J.C. Penney's issuer default rating to CCC from B-, citing a higher-than-expected cash burn throughout 2013 and concerns that the company will have to mine external sources for more capital in 2014.

Late Tuesday, Reuters reported that a small investor in the company had filed a lawsuit over a recent stock sale that caused the company's shares to drop dramatically.

The investor, Alan Marcus, said management had assured investors that its cash position was fine and that no new capital would be needed, only to turn around and sell as much as $903 million of stock.

The stock was sold at $9.95 per share, and news of the offering sent the shares down 13.1%.

"As a result of defendants' false statements, J.C. Penney stock traded at artificially inflated levels," Marcus said in a court filing.

On Wednesday, the company said it was closing all of its outlet stores, which will result in layoffs for about 1,400 employees.

Among other distressed retailers, a trader saw RadioShack Corp.'s 6¾% notes due 2019 trading down 1¼ points to 70.

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