J.C. Penney, OGX bonds stay in focus amid financial stability concerns; market ends week soft

By Stephanie N. Rotondo

Phoenix, Oct. 4 - Distressed debt players were continuing to focus on recently topical names such as J.C. Penney Co. Inc. and OGX Petroleo e Gas Participacoes SA.

One trader said both names were among the day's "big losers," as J.C. Penney's debt dropped as much as almost 4 points and OGX paper fell as much as 4½ points on the day.

Investors are worried about both companies' ability to continue as a going concern. After stating last month that it would not need more capital, J.C. Penney recently wrapped a share of common stock that raised over $800 million - that amount increases to over $900 million if an overallotment option is fully exercised.

As for OGX, it missed a $44.5 million coupon payment earlier in the week. Though that was largely expected, news out Thursday regarding oil reserves at the company's only viable field, Tubarao Martelo, proved to be a disappointment.

Overall, the distressed space was trending toward the weaker side, a trader reported, even as the broader high-yield market inched up.

J.C. Penney's dive continues

J.C. Penney bonds remained under pressure as the week came to a close.

A trader saw the 5.65% notes due 2020 falling almost 4 points to 753/4, while the 5¾% notes due 2018 dropped over 3 points to end at 73 5/8.

The 7.4% notes due 2037 declined 1½ points to 673/4, he said.

Another market source pegged the 5.65% notes at 70 bid, down 2 ½ points day over day.

The Plano, Texas-based retailer is in process of a turnaround effort that has not proven successful just yet. Sales have deteriorated rapidly and cash burn has been higher than expected.

The cash burn recently prompted Goldman Sachs analysts to say that fresh capital would be needed before the end of the year. The company initially refuted that claim, only to then announce a sale of common stock.

One small investor has filed a lawsuit against the company over the stock offering, claiming that their statements about needing more money were false and misleading, which led to a false inflation of the share price.

OGX into single-digits

OGX debt continued to decline Friday, falling into the single-digits.

A trader called the 8½% notes due 2018 down 3 points at 9, while the 8 3/8% notes due 2022 lost 4½ points, closing around 91/4.

The trader had previously told Prospect News that both issues were trading flat, or without accrued interest, after the company missed a coupon payment on the 2022 paper earlier in the week.

On Thursday, the company said that its Tubarao Martelo oilfield had about 87.9 million barrels of oil product - a figure that was less than a third of what the company had originally forecast.

The area is the company's only producing field.

The Brazilian oil producer majority-owned by Eike Batista has said that it is working with advisors from Blackstone Group LP and Lazard to go over its options as money runs out. The buzz is that a bankruptcy will come by Nov. 1.

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