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JC Penney High Yield Debt Plunges into Distressed Territory

J.C. Penney 8.625% second-lien secured bonds due March 2025—which priced at par just five months ago—slid some 10 points in trading Thursday, marking their inaugural descent into distressed territory at 73.5, trade data show.

The move follows the release of a substantially narrower-than-expected bottom line for the struggling department-store operator, as second quarter adjusted EBITDA of $105 million clocked in 45.5% below Street forecasts, based on consensus data compiled by S&P Global Market Intelligence.

Meanwhile, J.C. Penney’s 5.875% secured notes due July 2023 were off as much as 4.75 points in Thursday trading, declining to all-time lows of 89.75, before settling in midafternoon trading to 90.75 The secured tranche was placed in June 2016 at par, as part of a $500 million print backing the pay-down of real-estate term debt.

The issuer’s B term loan due 2023 (L+ 425, 1% LIBOR floor) was quoted in a 92.375/94.125 context in morning trading, down from 95/95.875 yesterday, according to market sources.

Management also slashed the company’s full-year EPS guidance to a loss per share of $0.80 to $1, from a prior forecast of a $0.07 loss to a $0.13 gain previously—sending shares to new sub-$2 lows. Sources highlighted that the company seems to be pursuing “buying and chasing” as it looks to take substantial markdowns to balance its inventory.

J.C. Penney’s secured bonds had previously declined in May, following mixed first-quarter results and the resignation of its then-CEO Marvin Ellison, who announced plans to pursue opportunities with Lowe’s Companies.

J.C. Penney is a Plano, Tex.–based operator of more than 1,000 department stores across the U.S. — James Passeri/Tyler Udland

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