J.C. Penney bonds end recent run-up; Caesars debt under pressure; coal sector continues rally

By Stephanie N. Rotondo

Phoenix, Nov. 6 - Though the broader markets were firm in midweek trading, the distressed debt issues getting the most focus of the name was driven downward.

J.C. Penney Co. Inc. paper ended its recent rally, as traders saw the retailer's debt falling a point or more on the day.

Caesars Entertainment Corp. was also continuing to weaken. On Tuesday, Fitch Ratings released a report in which it said the Las Vegas-based casino operator might be looking at taking away certain guarantees from second-lien debtholders, which would give them less power in the event of a restructuring.

The coal sector, however, remained a bright spot in the distressed space, as traders saw bonds of Arch Coal Inc. and Alpha Natural Resources Inc. continuing to climb higher.

J.C. Penney rally ends

A trader said J.C. Penney debt was down a point or more on Wednesday, following several sessions of gains in bonds.

The 7.65% notes due 2016 lost "a point and change," ending at 843/4, while the 5¾% notes due 2018 slipped a point to 771/2.

The trader also saw the 7.95% notes due 2017 decline 1¾ points to 82.

Another market source pegged the 5.65% notes at 76½ bid, off over a point for the day.

At another desk, a trader quoted the 7.4% notes due 2037 at 70 bid, 71 offered, which he said was down "a little bit."

The trader said that the dip in the debt might have been due to profit taking, although he noted that the bonds have been trending in line with the equity of late.

"The stock was down today," he noted.

The shares (NYSE: JCP) fell 61 cents, or 7.34%, to $7.70.

Caesars gets knocked down

Caesars Entertainment bonds remained depressed Wednesday, just one day after Fitch said the company could be considering limiting some debtholders claims in the event of a restructuring.

A trader saw the 10% notes due 2018 fall a point to 47 amid "a fair amount of trading."

Another source pegged the debt at 48 bid, which was off 2 points.

Yet another trader placed the issue at 47.

Caesars has about $23.5 billion in debt and recent earnings have revived chatter that a restructuring might be necessary. According to Fitch, the company might be looking at erasing guarantees tied to $5.5 billion of second-lien debt. That could result in those holders seeing very little in the way of recovery if the company files for Chapter 11 protections.

If the company were to swap the second-lien issues for equity, it could decrease its annual interest expense by $570 million, Fitch said.

Coal remains firm

A trader said that "some of the coal names continue to trade higher and be active."

Another trader said the sector was "continuing [its] rally."

The first trader saw Arch Coal's 7¼% notes due 2020 at 783/4, which he said was "probably up at least a point." Alpha Natural Resources' 6% notes due 2019 were meantime "up about a point" at 883/4.

The second trader called Arch's 7¼% notes up 1½ points, also at the 78¾ mark.

Another source deemed Alpha Natural's 6¼% notes due 2021 a point better at 871/2.

PDVSA mixed

Petroleos de Venezuela SA bonds were mixed in midweek trading.

A trader said the 8½% notes due 2017 saw trading of nearly $40 million on the day, though the paper fell slightly to 87 3/8.

However, the 9% notes due 2021 were "up almost a point" at 88 7/8.

Earlier in the week, Credit Suisse published a report in which it said that the state-owned Venezuelan oil company's dollar-denominated debt maturing in 2014 was a buy.

It also recommended shorting the debt coming due in 2022.

The report based its views on the fact that the 2014 paper is a cheap opportunity with a looming maturity, which means there is less issuance risk going forward.

The bank forecast that PDVSA will issue another $5 billion in debt next year.

As for the 2022, the bank deemed that issue the most expensive of the structure and said it was most vulnerable to issuance risk.

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