J. C. Penney: Fallen Angel or Just Fallen? Market Vectors’ Fran Rodilosso Weighs In

NEW YORK--()--Though retailer J. C. Penney (JCP) has undergone multiple management changes and significant volatility in the price of its equity and debt over the last few years, the company nonetheless retains some of the qualities of the classic “fallen angel,” according to Fran Rodilosso, fixed income portfolio manager at Market Vectors ETFs. Fallen angels are generally large, well known corporations that were investment grade at the time they issued debt, but were subsequently downgraded to “junk” status.

“J. C. Penney is a recognizable, long-established brand name. As such, its financial woes have attracted considerable attention from both the media and a variety of well-known investors,” Rodilosso said. “While the basic business has struggled, the company has a real estate portfolio that could provide sufficient coverage of its senior secured liabilities and help to provide a potential floor on recovery value for its unsecured debt in a liquidation scenario.”

Rodilosso noted that J. C. Penney is pursuing cost cutting and margin improvement, and that it is highly focused on maintaining liquidity and, ultimately, addressing its high degree of leverage relative to its major competitors. In the latest quarter, JCP’s bottom line improved due to expense cuts, allowing the company to post a small, but positive, quarterly EBITDA1 figure for the first time in more than a year.

“Though there has been some near-term improvement, it is very far from clear that J. C. Penney is out of the woods from an ongoing business perspective,” Rodilosso said. “While at least partial recovery for bondholders is not necessarily dependent on success for the business given the value of the assets potentially available to creditors in a bankruptcy, a convincing recovery in the company’s operations would still present a much better scenario. And, while situations like this may offer an opportunity, they require close monitoring and analysis to determine what value, if any, the bonds may hold given current market price and outlook.”

Market Vectors offers the Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL), which tracks an index of below investment-grade corporate bonds denominated in U.S. dollars, issued in the U.S. market that were rated investment grade at the time of issuance. ANGL invests in high-yield bonds, which may be subject to greater risk of loss of income and principal and are likely to be more sensitive to adverse economic changes than higher rated securities. J. C. Penney bonds accounted for a 0.93% weight as of February 28, 2014.

Mr. Rodilosso has over 20 years of experience trading and managing risk in fixed income investment strategies, including more than 17 years covering emerging markets. Among the Market Vectors ETFs under his watch are Emerging Markets Aggregate Bond ETF (NYSE Arca: EMAGTM), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM®), Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC®), Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL®), International High Yield Bond ETF (NYSE Arca: IHY®), Investment Grade Floating Rate ETF (NYSE Arca: FLTR®), Renminbi Bond ETF (NYSE Arca: CHLC®), and Treasury-Hedged High Yield Bond ETF (NYSE Arca: THHYTM). As of December 31, 2013 the total assets for these ETFs amounted to approximately $1.4 billion.

1EBITDA (Earnings Before Interest, Taxes, Depreciation, and Appreciation) a financial performance measure used to analyze and compare a company’s profitability.

Please note that the information herein represents the opinion of the portfolio manager and these opinions may change at any time and from time to time. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Current market conditions may not continue. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. ©2014 Van Eck Global.

About Market Vectors ETFs

Market Vectors exchange-traded products have been offered since 2006 and span many asset classes, including equities, fixed income (municipal and international bonds) and currency markets. The Market Vectors family totaled $22.1 billion in assets under management, making it the seventh largest ETP family in the U.S. and 10th largest worldwide as of December 31, 2013.

Market Vectors ETFs are sponsored by Van Eck Global. Founded in 1955, Van Eck Global was among the first U.S. money managers helping investors achieve greater diversification through global investing. Today, the firm continues this tradition by offering innovative, actively managed investment choices in hard assets, emerging markets, precious metals including gold, and other alternative asset classes.

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Release Summary

J. C. Penney has received its share of negative attention, but might there be opportunity in the company's bonds? Market Vectors' Fran Rodilosso discusses



MacMillan Communications
Mike MacMillan/Chris Sullivan