J.C. Penney drops on back of CEO ouster; Exide bonds remain volatile; Ambac inks deal with IRS

By Stephanie N. Rotondo

Phoenix, April 9 - J.C. Penney Co. Inc. was the nom du jour in the distressed debt market on Tuesday.

Late Monday, it was announced that Ron Johnson had been ousted as chief executive officer and replaced with Mike Ullman - who, ironically, was the person Johnson replaced in 2011.

Reacting to the news, investors pushed the bonds down intraday. A trader opined that Johnson's outer, while necessary, was not necessarily going to fix all of the retailer's problems.

Meanwhile, Exide Technologies Inc.'s debt continued to gyrate. Standard & Poor's said it was considering a downgrade for the company.

J.C. Penney dips, CEO out

J.C. Penney's debt was "definitely the most active" in the distressed space on Tuesday, according to a trader.

"[The bonds] were definitely weaker," he added.

He saw the 5.65% notes due 2020 falling "about a point intraday" to 821/2. The 5¾% notes due 2018 lost 1 to 1½ points, he said, ending at 86½ bid, 87 offered.

Another trader called the 2020 paper down nearly 1½ points, closing at 82 5/8. But he called the 5¾% notes unchanged at 861/2.

The second trader also saw the 7.95% notes due 2017 ending off by 1¾ points at 94 1/8 and the 6 3/8% notes due 2036 down 1¼ points to 751/4.

The first trader also noted that the "stock got hammered pretty hard." The equity (NYSE: JCP) lost $1.94, or 12.22%, to close at $13.93. Total trading volume for the day was at least 6.5 times the average daily volume.

Despite assertions made last month that Ron Johnson's job was safe, the Plano, Texas-based retailer did in fact elect to replace him as CEO, given his failed attempt to turnaround the company.

Johnson was hired in 2011, replacing Mike Ullman - the same Ullman who is now replacing Johnson. Most of Johnson's ideas - especially getting rid of sales and coupons - were met with disdain by consumers and the turnaround effort failed. In late February, J.C. Penney reported a fourth-quarter net loss of $552 million, or $2.51 per share, and a full year net loss of $985 million, or $4.49 per share.

Same-store sales for all of 2012 declined by over 25%.

But a trader said that the re-hiring of Ullman - who reportedly does not have an employment contract - hasn't really sparked any confidence in investors.

"I think they're hoping it's on an interim basis," he said.

Interim or not, the CEO is going to have a very short time to get things in line. One analysis of the company's financials indicates that if J.C. Penney continues to burn through cash at the same rate it did in 2012, it will run out of funds and be forced into bankruptcy by Labor Day.

Exide gyrations continue

Exide Technologies' 8 5/8% notes due 2018 "continued their seesaw action" on Tuesday, a trader said.

He called the issue down slightly at 75 3/8.

But another trader said the issue "crept up" to 76 bid, 77 offered from 74½ bid, 76 offered on Monday.

S&P said Tuesday that it was reviewing the Milton, Ga.-based battery maker for a potential downgrade. The rating agency cited recent news regarding the hiring of restructuring advisors as the reason for its review.

Ambac settles with IRS

A trader said Ambac Financial Group Inc.'s settlement with the Internal Revenue Service could pave the way for the company's bankruptcy exit as early as May or June.

He saw the company's bonds trade in a 67½ to 68 context during the day's session.

The IRS had accused the bond insurer of improper accounting pertaining to its handling of certain operating losses to reduce its overall tax liability. If the settlement is approved by the bankruptcy court overseeing its case, Ambac will pay the federal government $1.9 million, plus another $100 million from its Ambac Assurance Corp. unit. Two additional payments might be made based on tax sharing agreements between the two entities.

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