J.C. Penney sees first sales gain since 2011; Affinion begins exchange offer; NII drifts down

By Stephanie N. Rotondo

Phoenix, Nov. 7 - Thursday was a good day for some distressed names.

J.C. Penney Co. Inc., for instance, reported its first sales increase since 2011. However, while a trader said the stock was "rebounding quite smartly," the bonds, while up, were not overly active.

Affinion Group Inc. meantime saw its bonds jumping as much as 25 points on the day after the company reported earnings and announced a private exchange offer for two series of notes.

However, NII Holdings Inc.'s debt continued to decline, with a trader seeing the debt off 6 points from Wednesday.

J.C. Penney sees sales gain

J.C. Penney reported a 0.9% same-store sales increase for October, the first monthly increase the Plano, Texas-based retailer has seen since 2011.

The news resulted in a gain for the stock (NYSE: JCP), which closed up 43 cents, or 5.58%, at $8.13.

But a trader said that as far as the bonds went, it was "a little bit lackluster," calling it "a quiet session" for the debt.

Still, the paper was trading higher. The trader saw the 6 3/8% notes due 2036 moving up over a point to end with a 71 handle, as the 7.4% notes due 2037 inched up a touch to 711/2.

Online sales were up quite a lot, rising 37.6% from a year ago. And while store traffic and per-item prices were lower than year-ago comparables, the average receipt total and number of items purchased increased.

The company attributed the gains to the fact that the store had brought back certain items and brands that customers had missed.

Though the better sales was good news for the company as it looks to turn itself around, there was also some negative news mixed in. Gross margins declined as the company brought back coupons and discounts.

J.C. Penney is slated to report third quarter earnings on Nov. 20.

Affinion boosted by exchange

Affinion Group debt popped on Thursday, after the company posted earnings and announced an exchange offer.

A trader said the 7 7/8% notes due 2018 rose over 7 points to close around 90 1/8. The 11 5/8% notes due 2015 meantime surged a whopping 25 points to end at 801/2.

The trader noted that the issue had traded as high as 82 during the session.

The massive gain in the 2015 paper came as the Stamford, Conn.-based marketing company said it was privately exchanging both the 11 5/8% and the 11½% notes due 2015.

The company said the exchange offer was aimed at extending maturities and "to eliminate the requirement to pay cash interest" on the existing notes.

Those who participate in the exchange will receive new 13¾%/14½% notes due 2018 and warrants good for shares of class B common stock.

The exchange expires on Dec. 9 at 5 p.m. ET.

Also on Thursday, Affinion reported its third quarter results.

During the quarter, revenues fell 8.4% to $339.4 million, due to declines in its North American Membership. The company had previously said that it was reducing the amount of new campaigns it engaged in with its North American financial institution partners.

Adjusted EBITDA was also weaker falling 10.8% to $83.4 million.

NII slump continues

NII Holdings' bonds remained under pressure, a trader said Thursday.

He saw both the 10% notes due 2016 and 7 5/8% notes due 2021 declining 6 points to 72 and 531/2, respectively.

The bonds have been steadily declining for several weeks and were not much helped by the company's earnings release in late October. During the third quarter, the Reston, Va.-based provider of Nextel mobile phone service in Latin America said it had lost 178,000 subscribers.

Net loss was significantly wider at $293.1 million, or $1.70 per share. For the same period of 2012, net loss was $82.4 million, or 36 cents per share.

Fannie, Freddie gain

Halted trading on the OTC markets took some of the wind out of Fannie Mae and Freddie Mac's sails.

Both agencies reported hefty profits on Thursday and, in turn, large dividend payouts to taxpayers. A trader said he thought the preferreds would be popping on that news, but the exchange made that difficult to tell.

At 11:25 a.m. ET, Finra stepped in and officially halted trading, which had already been down all morning due to what Saskia Sidenfaden, director of corporate communications, called "connectivity issues." The problem did get fixed, but the market didn't reopen until 3 p.m. ET, leaving little time for investors to get their trades in.

That being said, the preferreds were stronger once they actually started trading.

Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) ended up 25 cents, or 3.13%, at $8.25 and Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) rose a dime, or 1.23%, to $8.20.

Fannie reported net income of $8.7 billion and Freddie posted income of $30.5 billion.

For its part, Freddie's huge profit was due to writing up almost $24 billion in tax-related assets.

The massive profits at both agencies meantime also signaled that taxpayers were ever closer to getting their money back after bailing out the firms in 2008.

Freddie is planning to make a $30.4 billion payment in December, which will be an overpayment of about $9 billion. Fannie is making an $8.6 billion payment, which will leave it with about $2.2 billion to pay back to taxpayers.

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