JC Penney Sets $350M Bond Offering; Existing Debt Surges In Trading

Luke Millar , Contributor

J. C. Penney is seeking to test the primary high-yield market for the first time in 4.5 years with a $350 million offering of five-year (non-call life) senior notes as part of a refinancing exercise on three near-term maturities. J.P. Morgan, Barclays, and Goldman Sachs are joint bookrunners, and an investor call is scheduled for 10:30 a.m. EDT, with pricing scheduled for late this week, according to sources.

Banks are guiding investors to expected ratings of CCC-/Caa2, sources added.

As for a potential comparable to the new issues, the J.C. Penney 5.65% non-call notes due 2020 are pegged in a 92 context, offering about 7.375%, according to sources. That’s up about one point this month.

Proceeds from the SEC-registered deal will be used to finance a tender offer also launched this morning on the stressed credit’s three closest maturities: a $200 million issue of 6.875% notes due 2015, a $200 million issue of 7.65% notes due 2016, and a $285 million issue of 7.95% notes due 2017, according to the firm. The offer is to purchase up to $300 million of the paper at premiums to market value, but not quite make-whole premiums, even as all three are non-call, bullet notes.

Details on the tender offer can be found here, but in short holders are offered a $30 per bond early tender premium prior to 5:00 p.m. EDT on Sept. 22, while the base premium paid for tendering is $1,037.5, $1,075, and $1,067.5 per bond, respectively.

All three series surged on the news this morning towards the take-out prices. The 6.875% notes jumped three points, to 106/107; the 7.65% paper added 4.5 points, to 109.5/110.5; and the 7.95% notes pushed up three points, to 108/110, according to sources.

As reported, last month the borrower’s variety of bonds surged after the company reported better-than-expected second-quarter results. The company’s 7.65% notes jumped roughly three points to a 105 context, while 7.625% bonds due 2097 advanced to 85.5/87.5, from an 82 context, the sources noted. The latter are pegged 85/87 this week, and last traded in small lots at 86.24, trade data show.

Credit protection was essentially halved, with five-year CDS falling to five points upfront, from 10.5 before the report, according to Markit. This morning, five-year CDS was roughly 14% tighter, at 3.3/4.3 points upfront.

For the second quarter, J.C. Penney reported revenue of $2.8 billion, up from $2.66 billion last year, and in line with analyst expectations. The EBITDA figure blew out, however, with the company reporting a $342 million improvement  year-over-year, to positive $90 million. The S&P Capital IQ calculation for EBITDA came in at positive $39 million, versus a consensus mean estimate for negative $57 million in EBITDA.

Looking forward, J.C. Penney said it expects an increase in same-store sales for the third quarter and the full-year 2014 to be “mid-single digits,” filing show.