Arch Coal announces refinancing plan, coal names rise; J.C. Penney sees better November sales

By Stephanie N. Rotondo

Phoenix, Dec. 3 - Distressed debt was getting more play on Tuesday, helped in part by an influx of fresh news.

The coal sector, for instance, was on the active side and mostly higher. Two reasons were given for the firmness of the space, one being comments made by Environmental Protection Agency Administrator Gina McCarthy on Monday regarding the agency's willingness to be flexible on new carbon emissions requirements. Another was an announcement from Arch Coal Inc. in which the company said it was looking to improve its financial flexibility.

Meanwhile, J.C. Penney Co. Inc. put out its November sales report, which showed a significant increase. Though the retailer's debt was not trading all that actively, traders did note that the bonds were inching higher.

From the emerging market universe, Chilean grocery store operator SMU SA was downgraded by Moody's Investors Service on Tuesday. The company's debt dipped at least 2 points in trading.

Coal on the rise

Coal names were trending mostly higher during Tuesday's session.

One trader said Arch Coal's paper was up after the company announced a refinancing effort. In fact, the trader said that the day's top three biggest gainers were Arch Coal issues.

The 7% notes due 2019 were up over a point at 781/4, while the 7¼% notes due 2021 rose over a point to end at 763/4.

The 7¼% notes due 2020 increased nearly 2 points to 771/4, he said.

Alpha Natural Resources Inc.'s 6¼% notes due 2021 meantime inched up to 861/2.

However, he also saw Walter Energy Inc.'s 9 7/8% notes due 2020 falling a touch to 861/2. He said a recent sector report from BB&T Corp. mentioned the company as one that will be "vulnerable" to price changes in metallurgical coal going forward.

Another trader said the coal space was "a little bit better," seeing Arch Coal's 2019 paper at 781/2, which he deemed up 1½ points on the day.

As for Alpha Natural's 6¼% notes, he called them half a point higher at 86½ bid, 87 offered.

Another market source pegged the Alpha issue at 87 bid, up half a point.

Coal stocks were also said to be having a good day. Gains in the equities were attributed to comments made by an EPA administrator who said the agency would be flexible with states as they attempt to meet new carbon emission standards from power plants.

The new standards are expected to be officially announced in June.

As for Arch Coal's refinancing effort, the St. Louis-based company said late Monday that it was seeking amendments to its bank debt, as well as asking for $300 million to be added to its senior secured term loan B facility. Additionally, the company said it was launching a cash tender offer for $600 million of its 8¾% notes due 2016.

Those that participate in the tender by Dec. 13 will receive a total of $1,049.25 for each $1,000 of notes validly tendered.

"On the positive side, the company is addressing its 2016 debt maturity and modifying covenants should make the risk of non-compliance less likely over near to intermediate term," wrote Gimme Credit LLC analyst Evann Mann in an afternoon comment published Tuesday. "On the negative side, these transactions will put an incremental $300 million of term loan debt ahead of the remaining unsecured notes due 2019, 2020 and 2021."

J.C. Penney sales improve

J.C. Penney's 5.65% notes due 2020 got a boost as the company released its November sales report.

One trader saw the issue at 801/4, which he said was up a point. A second market source echoed that assessment.

A third trader quoted the paper at 81 bid, 82 offered, and added that he had heard that credit-default swaps had tightened by 1½ to 2 points.

"They were definitely better post-numbers," he said.

Based on preliminary figures, the Plano, Texas-based retailer said November same-store sales were up 10.1% year over year and that online sales continued to be strong.

The company had posted a 0.9% sales increase in October, the company's first sales gain in several years.

The November figures included sales from the significant Black Friday weekend.

SMU downgraded

Moody's downgraded SMU's credit rating and $300 million of 7¾% notes due 2020 on Tuesday.

The ratings were changed to Caa1 from B3. The agency cited weak operating results and liquidity, high leverage and difficulties turning itself around.

On the news, a trader said the bonds fella deuce from the previous week to 601/2.

SMU is based in Chile and operates grocery stores.

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