J.C. Penney tenders for 7 1/8% notes to close Goldman loan, bonds jump again; market ends firm

By Stephanie N. Rotondo

Phoenix, April 30 - J.C. Penney Co. Inc. remained the notable name in distressed debt, as the company announced a tender offer for its 7 1/8% notes due 2023.

The tender comes just one day after it was announced that Goldman Sachs was providing a $1.75 billion loan to the struggling retailer. The 7 1/8% debenture provides that no other debt can be layered on top of it, which meant the company needed to buy back the paper, or obtain an amendment.

Meanwhile, Eastman Kodak Co.'s unsecured issues - the 7¼% notes due 2013 and the 7% notes due 2017 - continued to rise following news out Monday regarding a transfer of assets to its U.K. pension plan.

A trader called the issues up another point at 211/2.

Also strong again was Ambac Financial Group Inc. The bankrupt bond insurer received approval on Monday to exit Chapter 11 protections, an event that is expected to occur on Wednesday.

A trader said the bonds - all of which tend to trade in line with one another - moved up to 73, "up another 2 points."

And, ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 were weakening, though on no fresh news. A trader pegged the debt around 31/2.

"Today was a very strong market," a trader said of the overall tone of the session.

J.C. Penney pops again

J.C. Penney's 7 1/8% notes due 2023 "continued to soar," a trader said as the Plano, Texas-based retailer announced a tender offer for the debt.

The trader called the issue up "another 10 points" at 1443/4.

Another market source quoted the issue at 143¾ bid, 144¾ offered, compared to 134 bid, 135 offered on Monday.

The bonds had jumped 30-plus points on Monday on news of a new loan from Goldman Sachs. Buzz was that the company was going to have to do something with the 7 1/8% notes, as language in the debenture did not allow new debt to be stacked on top of it.

Come Tuesday, J.C. Penney announced the tender and consent solicitation to amend certain parts of the indenture. The proposed amendments would allow for the loan to be inked ahead of the tender expiration.

Under the terms of the tender, holders who participate will receive $1,350 for each $1,000 of notes tendered. The amount includes a $50 consent payment.

However, the bonds are currently trading well above that amount. And there were concerns that the company won't get enough participation, which would result in an attempt to defease the debt.

"Although as we noted yesterday these bondholders are in a great bargaining position (now that we know how much cash the company needs to borrow, which is far greater than we had estimated), there is always the risk that the financing deal will fall apart and the downside is huge," wrote Gimme Credit LLC analyst Carol Levenson in a report release Tuesday afternoon. "We would guess that Penney will sweeten the tender offer somewhat so that everybody can feel like a winner."

Meanwhile, Moody's Investors Service downgraded the company during the session. The agency said that while the new $1.75 billion term loan will enhance liquidity, it does nothing to address performance and cash burn concerns and also weakens the overall capital structure.

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