Five-year credit protection on J.C. Penney pushed out to record wide levels again today, with quotes at 30.25/31.75 points upfront, according to Markit. That is wider by 10% on the day and squarely twice as costly over the past month since jitters of a capital raise in the debt markets morphed into a follow-on share offering and rumors of bankruptcy, which the company has denied.
Likewise, the issuer's various corporate bond issues notched new record lows. Examples include the 5.65% notes due 2020, which traded off two points, to 65.5, and the long-dated 6.375% bonds due 2036, which changed hands at 61, versus 64.5 last week, according to trade reports.
Fresh negative sentiment on the struggling retailer bubbled up via rumors of bankruptcy in recent days, not to mention terribly pessimistic Street research circulating today. To wit, Imperial Capital this morning cut the share-price target on JCP to $1 per share, from $5 per share previously, citing bankruptcy concerns.
JCP shares again traded to a new 52-week low, at $6.48, representing nearly an 8% decline today and 33% below the shares offering on Friday, Sept. 27, at $9.65.
The market valuation of five-year CDS yesterday initially surpassed a previous wide level around 23 points upfront amid the boardroom brawl in early August and again tested late last month amid media reports of capital needs. With levels having gapped out over the past month, the cost of default protection is essentially $1.55 million more of an upfront payment, at $3.1 million at the midpoint, in addition to the $500,000 annual payment, to protect $10 million of J.C. Penney bonds.
In the loan market, J.C. Penney term debt due 2018 (L+500, 1% LIBOR floor) slid to a 96.125/96.625 market this afternoon, off about half a point from Friday, according to sources. For reference, the $2.25 billion covenant-lite loan was issued at 99.5 in May via Goldman Sachs,
Recall that Fitch Ratings on Oct. 2 downgraded J.C. Penney and its senior notes to CCC, from B-, due to a projected free-cash-flow shortfall in 2014 and the resulting need for additional external funding, even with a $3 billion-plus liquidity injection this year. The downgrade follows S&P and Moody’s last spring, putting the current profile on the retailer’s various senior notes at CCC-/Caa2/CCC. – Matt Fuller/Kerry Kantin
