J.C. Penney Bonds With Debt Limit Surge After $1.75 Billion Loan

J.C. Penney Co.’s $254.5 million of bonds containing a provision that may restrict the retailer’s debt load surged after the company said proceeds of a new secured loan may be used to amend or acquire the notes.

The company’s 7.125 percent securities due November 2023 jumped 32.5 cents on the dollar to a record 134.75 cents and yielded 3.2 percent at 10:43 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt traded as low as 83 cents in January to yield 9.69 percent.

The retailer working to rebound from the lowest annual sales in more than two decades received a $1.75 billion, five-year term loan commitment from Goldman Sachs Group Inc., Plano, Texas-based J.C. Penney said today in a statement. Proceeds may be used to fund working capital requirements and “to amend, acquire or satisfy and discharge” the 7.125 percent notes, J.C. Penney said.

The securities are J.C. Penney’s only bonds with a so-called incurrence covenant that can restrict future issuance if the company’s ratio of net tangible assets to senior funded indebtedness is below 200 percent. The ratio was 304 percent at the end of last year, J.C. Penney said in a March 20 regulatory filing.

“We thought it was a gamble to buy these bonds, but it seems that this development puts those bondholders in a pretty good negotiating position,” Carol Levenson, director of research at Chicago-based Gimme Credit LLC, said today in a report. “None of this would have been necessary if Penney had not embarked upon its great visionary transformation.”

Before it's here, it's on the Bloomberg Terminal.