Distressed market improves, but volume stays thin; J.C. Penney bonds steady despite wider loss

By Stephanie N. Rotondo

Phoenix, Aug. 20 - The distressed debt market was gaining strength on Tuesday, though traders said it was on subdued volume.

One trader said activity was "muted," with only five bonds trading in the double-digits throughout the entire high-yield space.

"Not a tremendous amount of stuff was trading," another trader said.

Still, J.C. Penney Co. Inc. got some attention after the company released its second-quarter earnings. The bonds were somewhat higher to "semi-unchanged," according to one trader, even as the troubled retailer reported a significantly wider loss than the previous year.

Exide Technologies Inc. was also on the rise. A trader speculated that the gains were due to the company receiving a judge's approval to sell some smaller assets on Monday.

Not every name followed the day's trend, however.

A trader said Clear Channel Communications Inc.'s 10¾% notes due 2016 lost a deuce, closing at 86, while Caesars Entertainment Corp.'s 10% notes due 2018 fell almost that much to 553/4.

He noted that trading in both issues was very light.

Another trader said Momentive Performance Materials Inc.'s 9% notes due 2021 "definitely seemed like they were trading off," pegging the paper around 85.

J.C. Penney's losses adding up

Plano, Texas-based J.C. Penney posted a net loss for the second quarter that was nearly four times the loss posted for the same quarter of 2012.

Despite the weak earnings, the company said its back-to-schools sales were "encouraging." As such, the company's bonds were on the firmer side.

A trader said the 6 7/8% notes due 2015 were up almost a point at 91, while the 6 3/8% notes due 2036 ended up 1½ points at 701/4.

However, another trader said the debt was "semi-unchanged.

"I didn't think the market reacted strongly to the numbers," the trader said. "It's not like we saw stuff move 3 to 5 points or something."

He saw the 2015 paper around "90-ish" and said longer-dated issues were trading in the high-60s.

A third market source pegged the 5.65% notes due 2020 at 75½ bid, up a point on the day.

On Tuesday, J.C. Penney reported a loss of $586 million, or $2.66 per share. That compared to a loss of $147 million, or 67 cents per share, the year before.

Same-store sales declined by 12% and revenues fell to $2.66 billion from $3.02 billion.

The company said sales remained weak due to ongoing store renovations and "disappointing re-merchandising of its home departments."

At the end of the quarter, liquidity was $1.5 billion in cash, including a $2.1 billion loan inked with Goldman Sachs during the quarter. The company said it is hoping to close out the year with that much in its coffers.

Exide gets a rise

A trader said a judge's approval to sell certain smaller assets might have been what caused Exide Technologies' 8 5/8% notes due 2018 to gain ground on Tuesday.

He noted that the assets were not subject to claims from the Environmental Protection Agency.

He called the issue up 4 points to end around 70. Another trader said the bonds climbed up over 3 points, also to the 70 area.

Exide is a bankrupt manufacturer and recycler of batteries and is based in Milton, Ga.

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