J.C. Penney bonds continue to dip; Alpha Natural softer on earnings; Affinion comes off highs

By Stephanie N. Rotondo

Phoenix, Aug. 2 - Distressed bonds were mixed in trading as the week came to an end.

J.C. Penney Co. Inc.'s debt continued to struggle despite the company's assertion that reports from earlier in the week indicating vendor credit issues were untrue.

Alpha Natural Resources Inc. was meantime also softer after the company reported a loss for the second quarter. However, the loss was narrower than the previous year.

On Thursday, Affinion Group Inc.'s paper had risen sharply on the back of its second-quarter results. But the bonds were coming off of their highs in Friday trading, a trader said.

J.C. Penney decline continues

J.C. Penney debt remained under pressure on Friday as investors worried about potential issues with its credit lender, CIT Group Inc.

One trader called the 5.65% notes due 2020 off a point at 76, while the 7.95% notes due 2017 dropped to 91 from 951/2.

Another trader said trading in the name was thin, though the debt continued to weaken.

He pegged the 2020 paper at 76, down from a 77 to 78 context on Thursday.

"So they backed off 1 to 2 points," he said.

A third source called the 5.65% notes off 2½ points at 76 bid.

In a statement released early Thursday, the Plano, Texas-based company said reports that CIT Group had halted some payments to its suppliers were "untrue."

The news was first published late Wednesday in the New York Post.

Additionally, the company said it had "ample" liquidity of $1.5 billion.

Earnings hurt Alpha Natural

Alpha Natural reported a narrower loss for the second quarter, but the Bristol, Va.-based coal producer debt dipped anyway.

A trader said the 6¼% notes due 2021 falling 1½ points to 84. Another market source pegged the issue at 84 bid, down 1½ points.

For the quarter, Alpha Natural reported a loss of $185.7 million, or 84 cents per share. That compared to a loss of $2.23 billion, or $10.14 per share, the year before.

The previous year's loss was based on a writedown of assets and a restructuring charge.

Profit margin was weaker at $2.72 per ton, versus $6.57 per ton in the same quarter of 2011. Revenues dropped nearly 28% to $1.34 billion, as sales dropped 19% to 21.6 million tons of coal.

Analysts polled by FactSet were expecting a loss of 34 cents per share on revenues of $1.85 billion.

The company blamed the poor quarter on falling demand for coal, as well as lower prices. Additionally, Alpha Natural ran into production issues at its Cumberland and Emerald mines.

Affinion trades down

A trader said Affinion Group bonds were "a touch weaker from [Thursday's] highs."

The debt had risen dramatically after the company reported second-quarter earnings.

The trader also noted that the bonds were "not quite as active" as they had been in the previous session.

The 7 7/8% notes due 2018 closed at 82½ bid, 83 offered and the 11½% notes due 2015 ended at 84½ bid, 85 offered.

At the end of the second quarter, the Stamford, Conn.-based company had a net loss of $13.6 million, compared to a loss of $62.9 million the year before.

Its parent company, Affinion Group Holdings Inc., posted a net loss of $23.7 million, versus $73 million in the previous year.

Net revenues declined 11% to $336.1 million.

Affinion is an affinity marketing firm.

Kodak facility breaks

Eastman Kodak Co.'s credit facility broke for trading on Friday, with the $420 million six-year first-lien term loan quoted at 98¼ bid, 98½ offered and the $275 million seven-year second-lien term loan quoted at 99 bid, par offered, according to a market source.

Pricing on the first-lien term loan is Libor plus 625 basis points with a 1% Libor floor and it was sold at an original issue discount of 98. There is hard call protection of 102 in year one and 101 in year two.

The second-lien term loan is priced at Libor plus 950 bps with a 1.25% Libor floor and was sold at 971/2. This debt is non-callable for one year, then at 103 in year two and 101 in year three.

The company's credit facility is also expected to include up to $200 million senior secured asset-based revolver that is priced at Libor plus 300 bps with a 50 bps unused fee.

J.P. Morgan Securities LLC, Bank of America Merrill Lynch and Barclays are leading the deal.

Proceeds from Kodak's $895 million senior secured credit facility will be used to finance distributions to creditors in accordance with the company's plan of reorganization.

The deal underwent a number of changes during syndication, including seeing pricing on the first-lien term loan firm at the tight end of recent talk of Libor plus 625 bps to 650 bps, but wide of revised talk of Libor plus 550 bps to 575 bps and initial talk of Libor plus 475 bps to 500 bps, the discount change from 99 and the call protection sweetened from a 101 soft call for one year.

Also, pricing on the second-lien loan was lifted from talk of Libor plus 825 bps to 850 bps, the discount was modified from 981/2, and the call protection was increased from 103 in year one, 102 in year two and 101 in year three.

Furthermore, the excess cash flow sweep was increased to 75% at close from 50%, a financial covenant was added beginning in December 2014, and a minimum liquidity test was added through December 2014.

Kodak is a Rochester, N.Y.-based imaging technology products and services provider.

Sara Rosenberg contributed to this article

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