Nortel Networks’ debt weak for second day on allocation plan; JCPenney quiet ahead of earnings

By Stephanie N. Rotondo

Phoenix, May 13 – Distressed debt investors were again eyeing Nortel Networks Inc.’s bonds during Wednesday trading.

Bankruptcy judges from the United States and Canada announced on Tuesday a liquidation formula for Nortel Networks’ remaining $7.3 billion in assets.

Under the formula, divisions in Canada, the United States and Europe would receive cash to pay to creditors. Creditors will receive a percentage of their claims as they relate to the overall business.

A trader noted that the news was not taken well on Tuesday and “the bonds really took it on the chin,” falling about 15 points in that session.

The weakness continued into midweek trading, he noted, seeing the floating-rate notes that matured in 2011 ending at 86 and the 10¾% notes due 2016 at 89.

The former, he said, hit a low of 85 before rebounding. The latter dipped as low as 85.

Nortel filed for bankruptcy in 2009 and ultimately wound down operations. Since then, investors and creditors have been duking it out in court, fighting for the biggest piece of the remaining assets.

JCPenney earnings out

J.C. Penney Co. Inc. released its first quarter results on Wednesday as well, but a trader said there was little action in the bonds ahead of the numbers.

The results were posted after the market closed.

The trader said both the 7.95% notes due 2017 and the 7.4% notes due 2037 were bid for, at 103¾ and 81, respectively. The 8 1/8% notes due 2019 were offered at 99¾.

For the quarter ended May 2, the Plano, Texas-based retailer reported net sales of $2.86 billion, up from $2.8 billion the year before.

Same store sales increased 3.4%.

Net loss was $167 million, or 55 cents per share – better than the 77 cents per share analysts had anticipated and a 52% gain year over year.

EBITDA improved to $168 million from $79 million.

Looking ahead, JCPenney revised its guidance, forecasting a 4% to 5% gain in same store sales, versus the 3% to 5% projected before. Free cash flow is expected to break even.

Hexion bonds improve

Hexion Inc. posted a wider first-quarter loss on Wednesday, which the company attributed to a stronger dollar.

Despite the bigger loss, the company’s debt was inching higher.

One trader called the 7 7/8% notes due 2018 up “almost 2 points” at 92 7/8. A second trader placed the 9% notes due 2020 at 82, which compared to 78 previously.

For the quarter, the Columbus, Ohio-based resin and specialty chemical manufacturer saw a loss of $34 million, up from $18 million the year before. Sales fell 17% to $1.1 billion from $1.3 billion.

Currency issues aside, sales would have fallen just 9%, the company said.

Segment EBITDA, however, improved 6% to $127 million. The company also saw positive cash flows of $35 million.

Hexion ended the quarter with debt of $3.8 billion and liquidity of $462 million.

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