17 August 2018 by pdonnat
J.C. Penneys published yesterday a weak set of earnings. The company forecasts to lose money this year. The market capitalization of the company is now half a billion USD with more than 4 billion debts. They are going down the rating grid, Moody’s downgraded the company to B3 from B2 today. The name is actively traded in the CDS market as a member of US IG indices a long time ago and a member of high yield indices over the last 6 years. According to OTCStreaming170MUSD notional traded yesterday for a tenth of its cleared outstanding notional. The spread widened 6% upfront for hedging 5 year risk. The company department store business is struggling for a long time but according to the attached grapple, the company is moving from the high yield cluster to the distress cluster. The company has 2 billion USD liquidities. The management should not give up on trying to save the company, but they are all alone. The capital market is closed for JCP for some time. Meanwhile, the credit index was weak. Gravity for credit is usually tighter due to the cost of carry. This is not the case at the moment . The gravity is fighting the end of august risk aversion and credit indices are failing to tighten on both sides of the pond.