Overseas Shipholding steady as sale procedures OK'd; J.C. Penney declines again; PDVSA active

By Stephanie N. Rotondo

Phoenix, March 5 - As the Dow Jones Industrial Average was hitting all-time highs, the broader market was rising as well, including the distressed debt arena.

"Most names were drifting higher with the equities," a trader said.

However, not all names were benefiting from the generally positive day.

Overseas Shipholding Group Inc. was deemed "maybe a smidge higher" as the company won approval to sell the rights, titles and interests in certain vessels owned by subsidiaries.

Meanwhile, J.C. Penney Co. Inc. bonds - as well as its stock - were on the decline following news that a major stakeholder had sold off about half of its holdings.

After the market closed, newswires started churning out news regarding the death of Venezuelan president Hugo Chavez. Before the news hit the tapes, the country's state-owned oil company - Petroleos de Venezuela SA - saw its bonds topping the day's activity. However, the debt ended mostly unchanged and it was unclear how they might react come Wednesday.

Overseas Shipholding active, steady

Overseas Shipholding Group won approval on Tuesday to sell certain vessels owned by subsidiaries.

The company also said that it was working to resolve a $453 million claim by the Internal Revenue Service.

The New York-based tanker's company's 8 1/8% notes due 2018 were on the active side during Tuesday's session, but were "about unchanged to maybe a smidge higher," according to a trader.

He pegged the notes at 52½ bid, 53 offered.

Another trader placed the issue in a 52-53 context.

J.C. Penney falls anew

J.C. Penney's bonds found themselves under pressure yet again on news that Vornado Realty Trust - the Plano, Texas-based retailer's second-largest shareholder - had unloaded nearly half of its stake in the company.

A trader saw the 5.65% notes due 2020 open around 80½ - which would have been unchanged from Monday's closing levels - only to fell to 78 bid, 79 offered.

"It was one of the most active bonds," he said.

The trader also saw the 6 3/8% notes due 2036 slipping to a "73-74 ZIP code" from previous levels around 75.

Another trader said J.C. Penney's debt was "off quite a bit," though he remarked that most of the trading in the name occurred late in the day.

The trader saw the 7 5/8% 100-year bonds dropping 3 points to 72, while the 5¾% notes due 2018 declined 2¾ points to 801/2. The 5.65% notes were deemed down 2½ points, as were the 6 3/8% notes, which closed at 78½ and 723/4, respectively.

Last week, J.C. Penney net loss of $552 million, or $2.51 per share, for the fourth quarter.

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. 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%.

Also last week, Vornado said that its 10.7% stake in the company had lost $224.9 million in value.

On Tuesday, J.C. Penney's stock (NYSE: JCP) dropped $1.78, or 10.63%, to $14.96.

PDVSA busy

Trading in PDVSA was "all the volume" in the high-yield space, a trader reported Tuesday.

The name tends to be an active one and held to that trend even before news came out that Venezuelan president Hugo Chavez had died.

The trader saw at least $70 million of the 8½% notes due 2017 change hands, ending unchanged at 991/2. The 9 notes due 2021 - of which about $20 million traded - were also unchanged around that same level.

Before the news of Chavez's death, Caracas-based newspaper El Universal had reported that the government and PDVSA had run up domestic debt by 27% between 2011 and 2012.

The government's liabilities meantime jumped 32% in the same time period.

Chavez relied heavily on the state-owned oil company to help relieve the country of its economic woes. Most of the funds were directed toward social programs, which opponents deemed unsustainable. Foes also said the reliance on funds from PDVSA was taking money away from the company and delaying much needed capital improvements.

Chavez was 58 and had been battling cancer.

Fannie, Freddie volatile

Fannie Mae and Freddie Mac preferreds traded wildly on Tuesday, following news out regarding a speech given by the head of the FHFA on Monday.

In his speech, Edward DeMarco said that he wanted to merge "back-office" operations of the two companies. In doing so, a new entity would be created, complete with its own chief executive and board of directors.

One market source said the move was a first step in a total liquidation of the government-owned mortgage backers. If that proves true, he said, it will be bad for preferred holders.

"Can you say zero?" he said of possible preferred recoveries.

Because the government currently owns senior preferreds - many billions of them, in fact - there would be little left over for other stakeholders, the source explained.

Still, he said he thought the effort would go through.

"I think what they have offered will make a lot of sense politically," he said. "And I bet it sticks."

The source remarked that at one point post-news, Fannie and Freddie preferreds were up - "though I can't imagine why."

Another source said he had expected a bigger sell-off, noting that overall volumes in the name were not huge.

Of the most actively traded issues, Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) hit a low of $1.75 and a high of $2.10 before ending down 19 cents, or 8.68%, to $2.00. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) traded as low as $1.76 and as high as $2.06, but closed at $2.00 as well, down 8 cents, or 3.85%.

"I would have thought it would be less than $1.00," a source said of the day's closing prices.

GMX preferreds dive

GMX Resources Inc.'s 9.25% series B cumulative preferreds (NYSE: GMXR-P) were losing big, just one day after the company said it was skipping an interest payment on its senior secured second-priority notes due 2018.

The preferreds were off by $2.21, or 32.94%, as of midday, trading at $4.50. At the close, the issue was down $1.96, or 29.21%, at $4.75.

The straight equity (NYSE: GMXR) was meantime off 14 cents, or 5.53%, at $2.39.

There was no trading in the company's bond issue.

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