J.C. Penney stays topical, bonds close mixed; RBS preferreds drop amid reported bank shortfall

By Stephanie N. Rotondo

Phoenix, March 27 - Distressed debt trading was again subdued in midweek trading, as holidays and vacations continued.

J.C. Penney Co. Inc. remained topical, however, as it was reported that the company's latest pricing format rollout was nearing completion.

In the world of preferreds, Royal Bank of Scotland Group plc's securities slipped as reports showed capital shortfall for region's banks.

Meanwhile, the rest of the market was steady to down a touch.

A trader said Overseas Shipholding Group Inc.'s 8 1/8% notes due 2018 were "kind of where it has been," trading around 78½ bid, 79 offered.

AmerenEnergy Generating Co.'s 7% notes due 2018 were meantime unchanged around 81.

The trader also saw ATP Oil & Gas Corp.'s 11 7/8% notes due 2015 falling back to levels around 7, only to "come back" to 7 bid, 7½ offered.

And Ambac Financial Group Inc.'s bonds were holding around 71.

J.C. Penney mixed

J.C. Penney finished the day in mixed fashion amid reports its revised pricing format rollout was nearing completion.

One market source called the 5.65% notes due 2020 off slightly at 81½ bid. But another trader saw the 7 1/8% notes due 2023 inching up a touch to 95 bid, 95¼ offered.

The Plano, Texas-based retailer is in process of reintroducing sales discounts to its pricing format, after an unsuccessful attempt to offer "everyday low prices" without coupons or sales. Instead, price tags will indicate higher prices that have been "marked down" to what would have previously been deemed the "everyday low price."

On Tuesday, an equity analyst dropped his rating on the company, speculating that there were currently four avenues available for the struggling business to take. One scenario was very bullish, while another was only slightly so. The other two scenarios involved bankruptcy filings, either voluntary or otherwise.

RBS preferreds decline

In the world of preferreds, Royal Bank of Scotland Group plc's securities were taking a hit as the Bank of England said the region's banks faced a £25 billion capital shortfall.

The 5.9% noncumulative guaranteed trust preferreds (NYSE: RBSPE) fell 63 cents, or 2.92%, to $20.93. The 6.08% noncumulative guaranteed trust preferreds (NYSE: RBSPG) were off the most, losing 80 cents, or 3.67%, to end at $20.98.

The 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) dropped 32 cents, or 1.37%, to $24.39.

When Bank of England made its announcement, it did not get into specifics - that is, it did not say which bank or banks currently had shortfalls. But of the U.K.-based financial institutions, RBS was the only one to make a statement once the report came out.

"RBS has a strong capital position...we will continue to work with our regulators to ensure RBS remains at the forefront of international capital standards," the bank said.

While the statement on its face seemed positive, the fact that RBS was the only one to say anything about the shortfall might have spooked investors.

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