CREDIT COMMENTARY
Sep 25, 2013
JC Penney widens sharply
JC Penney stood out for all the wrong reasons on Wednesday and led to the US retail sector underperforming in an otherwise docile trading day.
The company came under considerable pressure after a leading brokerage issued a downbeat report on its prospects. The report highlighted JC Penney's significant capital expenditure requirements due to the rebuilding of its inventories and the consequent serious impact on its liquidity position.
JC Penney's weak balance sheet and declining profitability aren't exactly news to the market - it has been in the firing line for some time. But when a credit is in the doldrums it doesn't take much to accelerate negative momentum, and this seems to be the case today. The firm's spreads widened 154bps to 1195bps, close to the record wide of 1243bps reached last month. If it is to mount a meaningful recovery JC Penney will probably need to strengthen its balance sheet by raising capital - no easy task in its difficult position.
Elsewhere, spreads were range-bound, with the Markit iTraxx Europe and Markit CDX.NA.IG staying close to yesterday's closing levels of 97.54bps and 78.85bps respectively. This is no surprise given the uncertainty around the timing of QE tapering and the deadlock in US debt ceiling discussions.
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