RadioShack, J.C. Penney drop as investors ponder future; Edison Mission rises on merger plans

By Stephanie N. Rotondo

Phoenix, Jan. 8 - The retail sector was taking focus in the distressed space on Wednesday.

RadioShack Corp. continued to retreat as investors pondered whether or not the struggling electronics retailer could make a comeback. Similarly, investors were again considering whether or not J.C. Penney Co. Inc. could turn itself around.

For its part, J.C. Penney said Wednesday that it was "pleased" with its holiday sales and reiterated its fourth-quarter guidance. However, the company did not provide any data to back up its claims, leading many to wonder if the assertion was just a lot of hot air.

Meanwhile, Edison Mission Energy bonds were ticking higher. A conference call with NRG Energy Inc. was held on Tuesday, in which NRG management said the merger of the two companies was on track.

Generally, the distressed debt market continued to lean toward the firm side, according to traders.

"Everything continued to creep up," said one trader.

RadioShack, J.C. Penney slide

RadioShack's 6¾% notes due 2019 "have been on the heavy side," a trader said Wednesday.

Another trader said the issue traded as high as 591/2, but went out in a 58 to 59 context.

A third trader called the issue off "more than a point" at 591/2.

The Fort Worth, Texas-based retailer has been struggling to regain market share from other big box stores like Best Buy and Wal-Mart. Though it has been able to limp along, rumor has it that holiday sales were less than stellar. On top of that speculation, bearish put options soared earlier in the week, driving the company's equity down and leaving some to wonder what was going on behind the scenes.

That was also the case with J.C. Penney on Wednesday, after the Plano Texas-based company said that it was "pleased" with its holiday sales, though it failed to provide any specific details on what that meant exactly.

"Where's the beef?" wrote Gimme Credit LLC analyst Evan Mann in an afternoon comment put out on Wednesday. "We are disappointed by the lack of details in today's press release, especially in light of heightened investor concern regarding this credit."

One trader said the 5.65% notes due 2020 dropped almost 1½ points to 76 7/8. Another market source placed the issue at 77 bid, down 1¾ points.

A third trader said the debt was "weaker, but not super active," calling the 7.65% notes due 2016 down about a point at 80 bid, 80½ offered.

Also in the press release, J.C. Penney said it "reaffirmed" its 2014 outlook as set out in a Nov. 20 third-quarter earnings release. In that statement, the company said that it expected to see improvement in same-store sales and gross margin and that year-end liquidity was slated to "be in excess" of over $2 billion.

Edison bonds firm up

A trader said Edison Mission paper was rising as investors were trending positive on the bankrupt power producer's planned merger with NRG Energy.

"There was a conference call yesterday," the trader noted of the acquisition in which ARG will purchase nearly all of Edison's assets. In the call, NRG management said the sale was expected to close by the end of the first quarter.

"The market perceived that as a positive that the transaction would go through," the trader said.

Come Wednesday trading, Edison's debt - which tends to trade in line with one another - was inching up to levels around 78.

Edison is based in Rosemead, Calif.

Fannie, Freddie pop

Fannie Mae and Freddie Mac preferreds were "ripping" in early Wednesday trading, a trader said.

The preferreds were rising on the back of news that the new head of the Federal Housing Finance Agency, Mel Watt, said late Tuesday that the mortgage giants should delay an increase in government-backed loan fees.

Watt wants to look into the fee increase, he said, specifically the "implications for mortgage credit availability." Fees associated with these loans often get kicked down to borrowers, resulting in higher mortgage rates.

Additionally, the trader said he had heard that both agencies were asking a federal court to determine that a change in the bailout contract with the government led to the contract being breached. The change in question is a rule that requires Freddie and Fannie to turn over any profits over a certain amount to the government.

"About every one [of the preferreds] is up about 50 cents," the trader noted early in the day.

Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were up 35 cents as of mid-morning at $9.40. Fannie's 8.25% series S fixed-to-floating rate noncumulative preferred stock (OTCBB: FNMAS) was up 21 cents at $8.93.

By the end of business, the Freddie issue had jumped up $1.13, or 12.49%, to $10.18, while the Fannie preferreds rose $1.28, or 14.68%, to $10.

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