J.C. Penney debt falters on news of credit facility drawdown; PDVSA bonds slip post-election

By Stephanie N. Rotondo

Phoenix, April 15 - The distress debt market was softening Monday, as commodities started to suffer, taking the overall market down as well.

"There was nothing really on the upside," a trader said.

Late-day news out of Boston regarding explosions at the finish line of the Boston Marathon was also taking attention away.

As for the day's dealings, most activity in the general high-yield space was focused on Sprint Nextel Corp. and DISH Network Corp. as the latter made a $25.5 billion takeover bid for the former. But "the market didn't take to that news so well," a trader said, and both names lost ground in Monday trading.

J.C. Penney Co. Inc. remained in the headlines as the company announced it had drawn down $850 million from a credit facility in order to ensure liquidity going forward. The market didn't take too well to that news either, sending most of the retailer's bonds issues downward.

In emerging markets, Petroleos de Venezuela SA's debt was under pressure following an election on Sunday. Nicolas Maduro, the former vice president under Hugo Chavez, was narrowly elected, but opposition candidate Henrique Capriles Radonski was calling for a recount.

It was unclear if a recount would occur.

Draw weighs on J.C. Penney

A trader saw J.C. Penney's 6.9% notes due 2036 fall to 74¼ bid, 74¾ offered on Monday, following news the company had drawn $850 million from a credit facility.

However, the 7 1/8% notes due 2023 were up "a couple points" to 99 bid, par offered, he said.

"It's a different indenture," he said of the mixed trading. "Clearly people are angling somehow."

Another market source called the 5.65% notes due 2020 off a touch at 82½ bid.

The Plano, Texas-based retailer said it had drawn down its $1.85 billion credit facility in order to fund capital expenditures and working capital. The draw "provides more than its current funding needs to ensure our continued liquidity," Ken Hannah, chief financial officer, said in a statement.

But such a massive draw has many wondering what the scenario is. Gimme Credit LLC analyst Carol Levenson pointed out in an afternoon comment that the draw meant there was obviously no equity investor ready to ink a deal, though J.C. Penney has said it is looking into other financing options and several private equity firms are reported to be considering injection cash into the struggling company.

Levenson also noted that the company said the funds could be used for operations, which would indicate that cash flows are currently negative - typical at this time of year for retailers, she said.

"It's good that the company has the flexibility to do this, but it also demonstrates that the 'internally financed transformation' envisioned by previous management was a pipe dream," she wrote in her report.

PDVSA slips

PDVSA bonds were weakening Monday, as Sunday's election results were being called into question.

A trader said the debt was "real active," calling the 8½% notes due 2017 down nearly a point at 97 7/8. The 9¾% notes due 2035 were off a deuce at 95¼ and the 9% notes due 2021 fell over 1½ points to 95.

Given Hugo Chavez's death in March, Venezuela had to hold another election to appoint a president. Chavez's handpicked successor, Nicolas Maduro, reportedly won with 50.7% of the vote, while opposition candidate Henrique Capriles Radonski took 49.1%.

Capriles is calling for a recount, demanding that every vote be counted until a new president is named.

For his part, Maduro has said that he will continue to use the state-owned oil company as a way to fund social programs. However, those programs are said to be causing many financial issues at PDVSA, as the company has failed to hit production targets and cannot afford to do so as it needs to complete capital projects.

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