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Nordstrom CDS post Downgrade

04 September 2020 by jbchevrel

Nordstrom Inc. (JWN) is an US fashion retailer of apparel, shoes, and accessories. JWN operates through multiple channels (discount stores, boutiques, catalogs, and online). Today JWN was the worst performer in CDX IG, the 5y CDS going wider by +38BP to 533BP. JWN took another hit as S&P slashed its credit rating to junk overnight, one week after they reported quarterly sales down by more than half (-53%). S&P downgraded the long-term issuer credit rating one step to BB+, from BBB-. That leaves JWN rated Baa3/BB+. S&P also signaled that more downgrades are possible over the medium to long term. To justify, nothing new, S&P cited the declines in department-store sales (happening for years -- only ‘accelerated’ by COVID) linked to falling mall traffic. That move on JWN drove peers wider (Macy’s +20BP Kohl’s +9BP). This participated in CDX IG underperforming Main, coupled with drillers CDS (Crude -4% today -- WTI below $40). Q220 sales were $1.9B in Q220, vs $3.9B in Q219 (Q2 designates the quarter ending July 31). That maintained pretax income negative, at -$421M in Q220, although less so than in Q120 (-$847M), which had been a huge ‘miss’, compared to what consensus had expected. JWN reported roughly $4.5B debt on balance sheet as of Q220, with roughly $1B in cash. The unsecured 6.95% Mar28s, that have come down to Baa3/BB+ here, have lost about -0.5% today, leaving their Z-spread in the area of 600BP. These are down -21% COVID to date, up +16.5% from the April lows.