J.C. Penney's dismal earnings put pressure on bonds; NII Holdings also lower, as numbers miss

By Stephanie N. Rotondo

Phoenix, Feb. 28 - Earnings news was driving distressed debt activity on Thursday, with J.C. Penney Co. Inc. leading the way.

The Plano, Texas-based retailer reported a massive loss after Wednesday's close. The company's bonds were slightly softer ahead of the release, but come Thursday the debt dropped as much as 5 points.

NII Holdings Inc. was also weaker - though less so than J.C. Penney - after the company posted numbers that were well below expectations.

J.C. Penney sees more losses

J.C. Penney's debt dropped Thursday on the back of the company's dismal earnings release after Wednesday's close.

One trader said the name was the "big mover of the day," seeing the 5.65% notes due 2020 falling as much as 5 points intraday, before recovering to end just 3½ points lower.

The issue ended with an 81-handle, the trader said.

The trader also saw the 7.4% notes due 2037 drop to a low of 80¾ before coming back to end around 82. That was still down 4 points on the day.

And, the 5¾% notes due 2018 lost 3 points, closing at 833/4.

A second trader said the 5.65% notes were the most active of the structure, though he called all the bonds down 2 to 4 points "depending on the maturity." As for the 5.65% notes, he pegged them at 81, down 4 points.

Earlier in the session, a market source had deemed the 5.65% notes down 5 points at 80 bid.

As for the company's stock (NYSE: JCP), it was down $3.59, or 16.97%, to $17.57. That was up from the day's low of $16.57.

Volume was about five times more than average.

One trader said the earnings out Wednesday were "disastrous," while another called them "horrible."

For the fourth quarter, the Plano, Texas-based retailer reported a net loss of $552 million, or $2.51 per share.

That compared to a profit of $294.1 million, or $1.28 per share, the year before.

Excluding one-time charges, net loss was $427 million, or $1.95 per share. Analysts had forecast a loss of 28 cents per share.

Revenues were down 28.4% to $3.8 billion, despite it being a big holiday quarter. Additionally, same-store sales declined by 31.7%.

For the year, the company lost $985 million, or $4.49 per share. Revenues declined by 24.8% to $12.99 billion.

Same-store sales were down 25%.

In early 2011, J.C. Penney had sought to change the way it did business by abandoning sales and coupons and instead offering "everyday low prices." Customers were not pleased with the changes, however, and the company eventually brought back sales and coupons.

Carol Levenson, an analyst with Gimme Credit LLC, said the 2020 maturity did not offer "compelling value" at current prices, "given the extraordinary uncertainty regarding the 'transformation' and the likelihood of structural subordinated to secured borrowing."

Another market source said Ron Johnson, chief executive officer and spearhead of the company's yet-to-succeed turnaround strategy, could soon be facing the chopping block, as his efforts have done little to bring about the promised turnaround.

NIHD slips post-earnings

Poor earnings were also weighing on NII Holdings' bonds Thursday.

A trader said the name was on the active side, seeing the 7 5/8% notes due 2021 falling half a point to 701/2.

Another trader said the issue was "down about a point," trading in a 691/2-70 context.

The Reston, Va.-based provider of Nextel wireless service in Latin America reported a loss of $593 million, or $3.45 per share. That compared to a profit of $3.2 million, or 2 cents per share, the year before.

Analysts were expecting a loss of just $1.21 per share.

The fourth-quarter loss was negatively impacted by a writedown of the company's assets in Chile.

Revenues were meantime off by over 8% at $1.47 billion.

Earlier in the month, NII had provided an outlook for fiscal 2013 that failed to excite investors. The company said it was expecting full-year revenues of $5.7 billion to $5.9 billion, with only mid-single digit subscriber growth.

Broad market firms

Among other distressed names, Exide Technologies Inc.'s 8 5/8% notes due 2018 were called "a little better," despite a downgrade from Standard & Poor's.

The trader quoted the bonds at 84 bid, 84½ offered.

Another trader said that ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 were "stronger," though on no fresh news. He pegged the issue around 5.

"It's probably just general short covering," he said.

The trader also said that AmerenEnergy Generating Co.'s debt - which trades in line with one another - "leaped a little bit," hitting a high of 56 bid, 57 offered before settling back in to 53 bid, 54 offered.

And, Overseas Shipholding Group Inc.'s bonds were "up another 3 points," according to the trader.

He placed the 8¾% notes due 2013 at 43 and the 8 1/8% notes due 2018 at 421/2.

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