Overseas Shipholding files, bond trades are 'volatile'; Penney sees more hits; Cengage falling

By Stephanie N. Rotondo

Phoenix, Nov. 14 - Distressed bonds were "getting hit here late," a trader said Wednesday.

"There was a lot of [debt] off three-quarters to a point," he said.

The nom du jour was Overseas Shipholding Group Inc., which announced it had voluntarily filed for bankruptcy. The filing came amid a cash crunch and a potential tax penalty.

Initially, the company's bonds - which are now trading flat, or without accrued interest - dropped to levels in the high-teens before coming back to end in the low-30s. Day over day, traders said it was difficult to tell if there was any difference in price, given that the paper was trading without accrued.

Meanwhile, J.C. Penney Co. Inc. continued to be topical. The bonds remained weak, as has been the trend since the company reported dismal earnings late last week.

OSG files, bonds on a ride

New York-based Overseas Shipholding Group - a company that operates oceanic oil tankers - sought Chapter 11 protections on Wednesday.

As a result, the company's bonds were "quite volatile," a trader said.

The 8 1/8% notes due 2018 opened with a 16 bid, 19 offered market, the trader reported. The low trade of the day occurred in the range at 183/4.

However, by the end of the day, the paper had traded back up to trade with a 31 handle.

The 7½% notes due 2024 meantime were "not quite as active" as the 8 1/8% notes, the trader said. That issue hit lows in a 25½ to 26 context before rallying back to end around 31.

Another trader said the credit was "one of the more active names," seeing the bonds fall to levels "around 20" before coming back to 31 bid, 33 offered.

The second trader noted that the bonds had begun trading flat, adding that the paper was "probably about unchanged" once the accrued interest was factored in.

OSG was able to file for bankruptcy without securing a debtor-in-possession facility, given its $550 million or so of available liquidity. Additionally, most of its $2.67 billion debt is unsecured, meaning that the company can halt interest payments while its case proceeds.

A decline in oil demand, as well as lower shipping prices, has weighed heavily on the company's balance sheet, as well as that of its sector rivals. Last month, OSG said that due to a potential tax issue, its financials from the last three years were unreliable.

J.C. Penney keeps dipping

J.C. Penney debt continued to lose ground Wednesday, as investors remained unconvinced that the Plano, Texas-based retailer's new marketing strategy could buoy results.

A trader said the name "continues to whipsaw around a little bit," seeing the 7.4% notes due 2037 just over 821/2, down over 2½ points.

Another market source pegged the 5.65% notes due 2020 at 86 bid, down a deuce.

Last week, J.C. Penney reported dismal third-quarter earnings and more than a 26% decline in same-store sales. The dip came amid a change to a sales platform of no coupons or special sales events, and where the company is looking to turn its stores into a conglomeration of mini-boutiques.

Though management has maintained its optimism that the method will catch on, not everyone shares that view.

However, management did try to place some of the blame for its sales decline on the fact that the third quarter has no major shopping holidays. But Gimme Credit LLC analyst Carol Levenson noted that competitors like Kohl's and Macy's saw increases in their sales for the same timeframe.

"For a believer, all Penney needs is time to implement fully its vision (say another 36 months)," Levenson wrote in a report that went out Wednesday morning. "But how long can it continue to lose money and bleed cash in pursuit of this vision?"

Cengage losing streak continues

In more trading news, Cengage Learning Acquisitions Inc.'s term loans softened again, with the extended debt quoted at 70½ bid, 71½ offered, down from 72 bid, 73 offered, and the non-extended debt quoted at 73 bid, 74 offered, down from 75 bid, 76 offered, according to a trader.

The term loans have been falling since the company came out with disappointing fiscal first quarters numbers late last week. Prior to the release of earnings, the extended term loan was quoted at 88 bid, 88½ offered, and the non-extended loan was quoted at 93 bid, 93½ offered.

The company's bonds have also been on a losing streak, though the notes were seen holding steady in midweek trading.

A trader noted that the bonds were "not that active," calling the 10½% notes due 2015 a "smidge" better around 24. The 12% notes due 2019 were "still sitting" around 38.

For the fiscal first quarter, Cengage's net income was $13.2 million, down from $131.5 million in the prior year, revenues were $538.3 million, down from $691.9 million, and adjusted EBITDA was $233.1 million, down from $348.8 million in the previous year.

And, because of the poor results, Moody's Investors Service downgraded on Tuesday the company's corporate family rating to Caa3 from Caa1.

Cengage is a Stamford, Conn.-based provider of teaching, learning and research services.

Clear Channel slips, Kodak firms

Among other distressed credits, a trader said Clear Channel Communications Inc.'s 11% notes due 2016 were "another point lower" around 69.

Eastman Kodak Co.'s 9¾% second-lien notes due 2018, however, were up half a point to a point at 69 bid, 70 offered.

Sara Rosenberg contributed to this article

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