J.C. Penney drops as analyst points to cash needs; Caesars investor lunch no picnic for bonds

By Stephanie N. Rotondo

Phoenix, Sept. 25 - Two distressed names - J.C. Penney Co. Inc. and Caesars Entertainment Corp. - were seeing sizable declines in midweek trading.

J.C. Penney debt came off 3 to 4 points on the day on the back of statements made by a Goldman analyst who said the company would run out of money soon. Caesars was meantime down about 2 points during the session, as the company held an investor lunch to discuss its planned $1.85 billion bond offering.

On the upside, Alcatel-Lucent paper was on the rise on rumors Nokia Corp. was looking to partner with the Paris-based telecommunications company.

Elsewhere in the distressed realm, a trader saw NII Holdings Inc.'s 7 5/8% notes due 2019 falling over 3 points to close around 79. There was no fresh news out on the provider of Nextel mobile phone service in Latin America.

Another trader said Energy Future Holdings Corp.'s 10% notes due 2020 dipped to trade around 106. He said the weakness was due to "continued speculation about coupons due Oct. 1.

"With this company, you never know [if payments will be made or not]."

J.C. Penney bonds drop

J.C. Penney's bonds dropped 3 to 4 points on Wednesday on the heels of an analyst report that stated the Plano, Texas-based retailer would soon run out of cash.

"The bonds were trading off a bit," one trader said, though he noted that they were "not all that active."

Both the 6 7/8% notes due 2015 and the 6 3/8% notes due 2036 were off over 3½ points, he said, at 91 1/8 and 671/4, respectively. The 7.95% notes due 2017 dropped over 3 points to 86 and the 5.65% notes due 2020 declined by 4½ points to 733/4.

Another market source pegged the 5.65% notes at 73½ bid, also calling that down 4½ points.

The company's stock meantime hit a 13-year low as Goldman Sachs analyst Kristen McDuffy said in a note to clients that the company will likely have to raise new capital in the near future.

The stock (NYSE: JCP) dropped $1.78, or 14.96%, to $10.12.

"Weak fundamentals, inventory rebuilding, and an underperforming home department will likely challenge J.C. Penney's liquidity levels in the third quarter," McDuffy wrote in the note. "In order to safeguard against a potentially poor fourth-quarter holiday season, it is likely that management will look to build a bigger liquidity buffer."

Analysts at UBS are forecasting that the company needs about $1.1 billion and that it will therefore need to raise at least $1 billion.

Last week, Bloomberg reported that the company was in fact looking at its financing options. It is reportedly working with Goldman - not only the source of the scathing report, but also where the company inked a $2.25 billion loan earlier this year.

It is also being speculated that back-to-school sales were less than stellar, fueling concerns that a bankruptcy filing could be on the horizon.

Caesars takes a hit

Caesars Entertainment's debt declined in midweek trading as the Las Vegas-based casino operator held an investor lunch to discuss its current financing plans.

A trader said the 10% notes due 2018 dominated the entire high-yield space, with almost $50 million of the bonds being exchanged. He called the issue down 2¼ points at 533/4.

The 9% notes due 2020 were off a like amount, he said, seeing the paper at 951/4.

At another desk, a source placed the 10% notes at 53¾ bid, down almost 4 points on the day.

As previously reported, Caesars is looking to refinance about $4.4 billion of CMBS debt and the $450 million senior secured credit facility entered into by Octavius Linq Holding Co. LLC, an indirect subsidiary. As such, the company is looking to sell $1.85 billion of senior secured notes.

The deal includes a $500 million tranche of seven-year first-lien notes (B2/B) and a $1.35 billion tranche of eight-year second-lien notes (Caa2/CCC+). Both tranches come with three years of call protection.

In addition to its investor lunch, Caesars announced Wednesday that it was selling 10 million shares of common stock.

Credit Suisse Securities (USA) Inc. is leading the stock sale.

Alcatel boosted by Nokia rumors

Alcatel-Lucent's 6.45% notes due 2029 rose 1¾ points to 851/4, according to a trader.

Another source said the debt improved by 1½ points, ending at 85 bid.

Renewed speculation about a partnership with Nokia might have been driving the bonds higher. Late last year, there was chatter that Nokia might consider buying Alcatel's wireless business, but a deal was never reached.

Official talks are said to not have begun yet, but analysts are already projecting that the wireless business - the most likely target for Nokia - would bring in as much as $2 billion.

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