J.C. Penney debt dips as board looks for new CEO; Verso rises on earnings; Alpha Natural gains

By Stephanie N. Rotondo

Phoenix, Aug. 8 - The distressed debt market was rallying a bit on Thursday, following the trend set by the equities.

However, some names were getting dragged down, pressured by news.

J.C. Penney Co. Inc. was one of those names. Even as the stock gained ground, the bonds were on the decline as it was reported that the company was again looking for a new chief executive.

The current CEO, Mike Ullman, took the job in April.

Meanwhile, Verso Paper Corp. was moving higher after the company reported a narrower loss for the second quarter.

The coal sector was also rallying, with Alpha Natural Resources Inc. bonds putting on as much as 1½ points on the day.

J.C. Penney's new CEO search

J.C. Penney paper was down as much as 4 points on the day after news the company could oust Mike Ullman, its chief executive officer.

Ullman took the post in April after Ron Johnson got the boot from the top job. Johnson's exit came as his turnaround plan failed to revive the struggling retailer.

A trader saw the 5.65% notes due 2020 around 70, which he said was down "almost 3½ to 4 points." The 6 7/8% notes due 2015 were meantime down a point around 89.

Another trader called the 2020 notes down 3 points at 70.

However, the stock (NYSE: JCP) rose 86 cents, or 6.72%, to $13.66 after the news, which was first reported by CNBC.

According to CNBC, the Plano, Texas-based company's board of directors agreed to look into possible replacements for Ullman during a July meeting. The search was initially proposed by activist investor Bill Ackman. Ackman had previously championed Johnson, who originally took over for Ullman in 2011.

Ackman wants a new CEO named within 45 days.

Ackman said in a letter that former CEO Allen Questrom had agreed to come back to the company as chairman, as long as he agreed with the new choice for CEO.

Verso narrows loss

A trader said Verso Paper's 11¾% notes due 2019 were inching up following the company's earnings release.

He called the issue up almost a point at 1021/2.

The Memphis-based papermaker reported a net loss before items of $39.2 million, of 74 cents per share. That compared to a net loss of $43.1 million, or 81 cents per share, the year before.

Net sales fell to $330.38 million from $365.26 million, a 9.5% decrease year over year.

The company said it continued to benefit from improving pulp and specialty paper prices.

Alpha paper rises

Alpha Natural Resources was on the rebound Thursday, though on no fresh news.

A trader said the company's debt was up as much as 1½ points, the 6¼% notes due 2021 at 801/4, the 6% notes due 2019 at 81¾ and the 9¾% notes due 2018 at 981/2.

Another trader saw the 2.375% convertible notes due 2015 hitting highs around 92.5, compared to trades in a 90 to 90.75 context the day before.

The stock was up 35 cents, or 7.11%, at $5.27.

The bonds, along with the coal sector in general, have been on the decline of late. Alpha itself was not helped by a wider quarterly loss last week or by news that Moody's Investors Service had placed the name on review for a possible downgrade.

Alpha Natural is a Bristol, Va.-based coal producer.

Fannie, Freddie slip

Fannie Mae reported earnings early in the day, following Freddie Mac's release on Wednesday. Despite increased profits, the agencies' preferreds were turning downward.

Fannie's 8.25% series S fixed-to-floating noncumulative preferreds (OTCBB: FNMAS) was down a dime, or 2.08%, at midday, at $4.71. Freddie's 8.375% fixed-to-floating noncumulative perpetual preferreds (OTCBB: FMCKJ) dropped a quarter, or 5.15%, to $4.60.

At the close, the Fannie issue was down 14 cents, or 2.91%, at $4.67 and the Freddie paper had drifted 19 cents, or 3.92%, to $4.66.

Though the mortgage giants have seen a return to profitability - Fannie posted a $10.1 billion profit for the second quarter, while Freddie saw profits of $5 billion - a trader said that most are assuming that the government will continue in its plans to wind them down.

However, the trader noted that with all of the profits the companies are making, the government might take a different route.

"They can't just throw that money away," he said.

Fannie intends to make a $10.2 billion dividend payment to the Treasury in September. Once that payment is made, Fannie will have paid $105 billion to taxpayers, after taking $117.1 billion in 2008.

For its part, Freddie is planning to make a $4.4 billion payment, bringing its total paid to the Treasury up to $41 billion.

Freddie took $71 billion in bailout funds.

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