J.C. Penney Swaps Rise as Johnson Ousted; EADS Sells Dollar Debt

Credit-default swaps tied to the debt of J.C. Penney (JCP) Co. rose after the struggling department store chain ousted Ron Johnson as its chief executive officer, replacing him with his predecessor.

Five-year contracts linked to J.C. Penney increased 2.8 percentage points to 15.7 percent upfront at 4:09 p.m. in New York, according to CMA, the data provider owned by McGraw-Hill Cos. that compiles prices quoted by dealers. That means it would cost $1.57 million initially and $500,000 annually to protect $10 million of obligations.

The swaps dropped by 1.7 percentage points yesterday on news that Johnson, 54, would be leaving the retailer, which had a fourth-quarter loss of $552 million, its biggest since 2004. The company will reinstate Myron E. Ullman III, 66, to run J.C. Penney while it works to rebound from its worst sales year in more than two decades.

“The board’s decision to make a leadership change by bringing back the former CEO underscores the severity of the operational issues at the company,” Standard & Poor’s analyst David Kuntz said in a report today, adding that the transition has no immediate impact on the company’s ratings or outlook. “We expect first-quarter performance to be very weak, and that Penney’s financial risk profile will remain ‘highly leveraged.’”

The Plano, Texas-based chain on Feb. 27 reported annual revenue dropped to $13 billion, the lowest since at least 1987. Johnson alienated the company’s core customers by doing away with sales and promotions and only recently began trying to win them back by putting discounts front and center again.

Low Expectations

J.C. Penney shares plunged 12 percent to $13.93 today, their lowest price in 12 years. The company was the worst performer in the S&P 500 Index. (SPX)

A gauge of U.S. corporate credit risk declined for a fourth day, with the latest version of the measure poised for its lowest close since traders started moving positions there on March 20.

The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark that investors use to hedge against losses or to speculate on creditworthiness, fell 0.8 basis point to 84.7 basis points at 5:05 p.m. in New York, according to prices compiled by Bloomberg.

“When European risks increased last month, investment grade underperformed,” Dominique Toublan, a credit strategist at JPMorgan in New York, wrote today in an e-mail. “That has now reversed.”

High Yield

The credit-swaps index typically falls as investor confidence improves and rises as it deteriorates. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

The risk premium on the Markit CDX North American High Yield Index tightened 2.7 basis points to 413.1 basis points in a fourth day of declines, Bloomberg prices show.

European Aeronautic Defence & Space Co. (EAD), the maker of the Airbus and Eurocopter, raised $1 billion of 10-year bonds in its first U.S. sale in more than 13 years, according to data compiled by Bloomberg.

The company’s 2.7 percent debt yields 98 basis points more than similar-maturity Treasuries, according to data compiled by Bloomberg. The bonds were sold through its EADS Finance BV unit and proceeds will be used for general corporate purposes.

EADS’s Air 2 US subsidiary sold dollar-denominated enhanced equipment notes in October 1999, issuing securities due 2019 and 2020, Bloomberg data show. EADS was established in 2000 when the German, French and Spanish partners in Airbus combined aerospace assets.

The average relative yield on speculative-grade, or junk- rated, debt added 2.2 basis points to 530.8 basis points, Bloomberg data show. High-yield, high-risk debt is rated below Baa3 by Moody’s Investors Service and less than BBB- at Standard & Poor’s.

To contact the reporter on this story: Victoria Stilwell in New York at vstilwell1@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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