J.C. Penney debt stays topical as Ackman steps down; Justice sues to halt AMR-U.S. Air merger

By Stephanie N. Rotondo

Phoenix, Aug. 13 - The high-yield bond market was more active on Tuesday than it had been on Monday and that trickled down into the distressed space as well.

"Volume picked up pretty significantly," a trader said.

J.C. Penney Co. Inc. was firming on news that activist investor Bill Ackman had given up his seat on the retailer's board of directors following a very public fight over the company's chief executive officer.

Meanwhile, AMR Corp. was trading all over the place as several states and the Department of Justice sought to bring a halt to the bankrupt airline's merger with U.S. Airways.

J.C. Penney mostly better

J.C. Penney bonds improved as word came out that Bill Ackman had left the company's board following a dispute over the next chief executive officer.

A trader saw the 5.65% notes due 2020 rising over a point to 70 7/8, while the 7.65% notes due 2016 gained 1½ points, closing at 871/4.

However, he said the 7.95% notes due 2017 were down nearly 2 points at 82.

Another market source pegged the 5.65% notes at 72½ bid, up 3 points on the day.

Ackman's departure comes on the heels of news out last week regarding the company's search for a new CEO. Ackman released letters he had written to the board to news outlets and a very public feud began.

For his part, Ackman was urging the board to find a new CEO sooner rather than later to replace Mike Ullman, who took over for Ron Johnson earlier this year. Johnson had taken over for Ullman in 2011 and was handpicked by Ackman himself.

But Johnson failed to make over the Plano, Texas-based retailer's image and soon the board asked Ullman to return.

Ackman's push for a new CEO was said to be based on internal second-quarter projections that were unfavorable.

Ackman's Pershing Square Capital Management holds a large stake in J.C. Penney and he has not said what he intends to do with it now that he is no longer on the board.

Ronald Tysoe, a retail sector veteran, joined the board in the wake of Ackman's exit. The company is said to be searching for another person to add to the team as well.

Elsewhere in the world of retail, RadioShack Corp.'s 6¾% notes due 2019 were up nearly a point at 713/4, according to a trader.

AMR volatile on antitrust suit

AMR bonds were all over the place Tuesday as it was reported that the Justice Department and several states had sued to halt a merger between the airline and U.S. Airways.

A trader said the 4.95% notes due 2023 moved up to par ½ and that the 7% notes due 2018 were "up a point and change" at 103 bid, 104 offered.

Another trader saw AMR's 6¼% convertible notes due 2014 offered as low as 103¼ to 1033/4, which he said was well down from where the notes had been trading before the negative news hammered them down.

Yet another market source also saw those bonds going home around the 103 bid level, with over $50 million having changed hands on the session. He said that the paper - which had been trading in a 116 to 117 context at the end of last week - had plunged as low as 103 in morning dealings in immediate reaction to the news, but then had managed to move back up to about 109, appearing to stabilize for a while there. However, a few late trades around 103-104 dragged the bonds back down going out.

While other AMR bonds did trade at lower levels, the 6¼% notes were the only one of the company's issues really generating any sizable volume of big-block trades.

The Justice Department's antitrust division is claiming that a merger between Dallas-based AMR/American Airlines and Tempe, Ariz.-based U.S. Airways would result in higher fees and fares. As such, it wants to bring an end to the $11 billion merger completely, rather than seek concessions.

The government agency has previously allowed mergers between United Airlines and Continental Airlines, as well as Delta Airlines and Northwest Air.

Arizona and Texas are reportedly supporting the lawsuit, along with at least four other states.

Both AMR and US Airways intend to fight the suit.

"Clearly this development was unexpected," wrote Gimme Credit LLC analyst Vicki Bryan in an afternoon comment sent out on Tuesday. "The merger had already passed European Union muster and the path has been cleared for the bankruptcy judge to approve AMR's plan of reorganization (crafted with the merger in mind) as early as this week, sans the egregious $20 million payout for outgoing CEO Tom Horton."

Bryan noted that Justice said very little when other airlines combined, but conceded that "integration-related havoc" from the United-Continental merger might have "helped to sour the well."

Bryan also said that if the merger is not allowed to go through, it could not only still mean higher fares for AMR passengers, but could result in a larger inconvenience to travelers as the struggling airline looks for ways to save money.

Paul Deckelman contributed to this article

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.