Arch Coal earnings down, but bonds up; J.C. Penney says sales getting better; OGX future murky

By Stephanie N. Rotondo

Phoenix, Oct. 29 - The distressed debt market was again higher during Tuesday trading, though volume was spread out over more names than usual, a trader said.

"It was a lackluster day as far as heavily traded individual bonds," the trader commented, adding that there were no issues in the entire high-yield space that saw over $20 million in round-lot trades.

Arch Coal Inc. paper was moving up, even as the company reported a larger loss than was expected for the third quarter.

J.C. Penney Co. Inc. was also firm, continuing its recent climb. On Monday, the company's management assured investors at the Women's Wear Daily conference that sales were on the rise.

On the downside, OGX Petroleo e Gas Participacoes SA bonds were slipping further into the single digits once again. The decline came as the company said talks with bondholders holding $3.6 billion of the company's debt ended without any restructuring agreement in place. Before that announcement, Reuters had reported that the company could be filing for bankruptcy within days.

Arch up despite earnings

Arch Coal's 7¼% notes due 2021 inched up to 76¾ on Tuesday, a trader said, after the company reported earnings.

In its third-quarter release, Arch also cut its production forecast for metallurgical coal for the second time this year.

For the quarter, Arch reported a net loss of $128.4 million, or 61 cents per share. That compared to a profit of $45.8 million, or 22 cents per share, the year before.

Excluding one-time charges, the loss was only a penny per share, which was better than analyst expectations of negative 31 cents per share.

Revenue declined 19% to $791.3 million. The company cited weak prices for coal as the reason for the drop.

Analysts polled by Thomson Reuters were expecting revenue of $888.8 million.

The company said it is expecting to ship 6.9 million to 7.3 million tons of metallurgical coal in 2013, which was down from a previous forecast of 7.7 million to 8.3 million tons.

In July, the company had predicted that it would sell 8 million to 9 million tons.

Elsewhere in the coal sector, Alpha Natural Resources Inc.'s 6¼% notes due 2021 slipped almost a point to 833/4, according to a trader.

Logan's debt skids

Logan's Roadhouse Inc.'s 10¾% notes due 2017 fell nearly 2 points after the restaurant's parent company, LRI Holdings Inc., reported earnings late Monday.

A trader pegged the bonds at 881/4.

During the fourth fiscal quarter, the Nashville-based restaurant chain said net sales improved by 1.2% year over year, even as comparable store sales dropped 3.9%.

Net sales was $161.7 million.

The company also noted that average checks increased 1.9%, though customer traffic declined by 5.7%.

Total net loss was $104.4 million, versus a loss of $52.1 million the year before.

J.C. Penney: Sales are improving

J.C. Penney's chief executive officer Myron Ullman again attempted to assure investors that the retailer's turnaround efforts were showing signs of life at a Women's Wear Daily conference on Monday.

Come Tuesday, the bonds were among the day's biggest gainers.

A trader saw the 5.65% notes due 2020 moving up 1½ points to 721/4, while the 7.95% notes due 2017 rose over a point to 781/2. The 7.4% notes due 2037 increased almost a point to 651/4.

Another market source called the 5.65% notes up 2½ points at 71¾ bid.

At the conference, Ullman maintained that J.C. Penney's outlook was improving.

"I told lenders it would be one thing if we had two things wrong and they couldn't be fixed. We have 30 things wrong and they can all be fixed," Ullman said on Monday.

It was the third time in about a month that the company has sought to relieve investors of uncertainty.

OGX talks falter

OGX debt dropped again on Tuesday, with a trader seeing the 8½% notes due 2018 falling half a point to 81/4.

Early in the day's session, Reuters reported that sources close to the matter had indicated a bankruptcy filing would be forthcoming within a matter of days. Not long after that, the company itself announced that talks with bondholders had faltered.

The company did not elaborate on why the talks failed or what its next step was.

Among other companies looking at entering bankruptcy soon, Energy Future Holdings Corp. saw its bonds holding in, even as a Nov. 1 interest payment loomed.

A trader said the 10% notes due 2020 were steady at 1033/4, while the 15% notes due 2021 linked to Texas Competitive Electric Holdings Co. LLC put on almost a point - "a good percentage move," a trader said - to close around 261/2.

The company has a $270 million interest payment coming due on Friday. Negotiations with creditors have been ongoing, but no official agreement has been reached as of yet.

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