Bonds of J.C. Penney Co. (JCP) climbed to the highest level in seven weeks as the retailer made its first profit in more than two years.
The department-store chain’s $300 million of 5.75 percent notes due 2018 surged 7.5 cents to 80.5 cents on the dollar at 2:15 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the highest level since Jan. 9.
Bond investors boosted the price as the retailer recorded a profit in the fourth quarter and forecast an increase in annual revenue and margin expansion, according to a statement from the Plano, Texas-based company yesterday. J.C. Penney has spent the past 10 months improving its finances and operations and now is ready to return to growth and profitability, Chief Executive Officer Mike Ullman said on a conference call with analysts to discuss the results.
“They’re certainly not going broke by any means, and the bondholders usually know as much or more than the equity holders,” Gary Bradshaw, a fund manager with Hodges Capital Management in Dallas, which oversees $1.7 billion, said in a telephone interview. The bonds’ advance “is a very positive sign for Penney.”
Bloomberg Default Risk shows about an 8 percent chance in the coming year, based on cash flow, debt and market value. The company is graded Caa1 by Moody’s Investors Service and an equivalent CCC+ at Standard & Poor’s.
The Markit CDX North American Investment Grade Index, a credit-default swaps benchmark used to hedge against losses or to speculate on creditworthiness, decreased 0.7 basis point to 63.8 basis points as of 4:23 p.m. in New York, according to prices compiled by Bloomberg. The measure is poised to close at its lowest level since Feb. 17.
The swaps gauge 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 market for corporate borrowing through short-term IOUs contracted as issuance by foreign financial institutions fell. The seasonally adjusted amount of U.S. commercial paper declined $16 billion to $1.012 trillion outstanding in the week ended yesterday, the Federal Reserve said today on its website. That’s the lowest level since the market touched $991 billion in the period ended Feb. 12.
Commercial paper sold by overseas financial institutions fell $10.6 billion to $251.9 billion, the lowest level in two weeks. Corporations sell commercial paper, typically maturing in 270 days or less, to fund everyday activities such as rent and salaries.
Juniper Networks Inc. (JNPR), a networking equipment maker, sold $350 million of 4.5 percent, 10-year senior notes, according to data compiled by Bloomberg. Use of proceeds may include share repurchases and acquisitions, according to a regulatory filing.
The Sunnyvale, California-based company plans to buy more than $2 billion of shares through the first quarter of 2015 and pay a dividend of 10 cents a share starting in the third quarter of this year, according to a Feb. 20 statement.
The risk premium on the Markit CDX North American High Yield Index, tied to the debt of 100 speculative-grade companies, narrowed 5.1 basis points to 313.1, Bloomberg prices show. Speculative-grade bonds are rated below Baa3 by Moody’s and less than BBB- at S&P. A basis point is 0.01 percentage point.
The extra yield investors demand to hold investment-grade corporate bonds rather than government debt fell 0.8 basis point to 98.4, Bloomberg data show.
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