J.C. Penney's Bonds Decline

New CEO’s turnaround plan deepens losses on retailer’s debt.

J.C. Penney Co. Chief Executive Officer Ron Johnson is finding it harder to convince bondholders than stockholders that his plan to turn around the fourth-largest department-store chain is “on track.”

After the Plano, Texas-based company reported a loss that exceeded analysts’ estimates on Aug. 10 and withdrew its annual profit forecast, J.C. Penney’s shares reversed course to rise the most since January when Johnson told investors that he’s “completely convinced that our transformation is on track.” The company’s $325.6 million of 7.4 percent notes due April 2037 dropped 1.5 cents on the dollar to 78.5 cents.

Liquidity Concern

Chief Financial Officer Ken Hannah, who started in May, said on the Aug. 10 conference call that he “was really surprised” to hear investors express concern about the company’s balance sheet and liquidity. J.C. Penney ended the quarter with $888 million in cash and $2.9 million of long-term debt, according to the statement. J.C. Penney will end the year with more than $1 billion of cash, he said.

Appealing Products

Johnson plans to make J.C. Penney more appealing by building small shops within each store that sell products such as Levi’s jeans, Martha Stewart housewares and Joe Fresh clothing. The new mini-stores will draw crowds like Apple’s introduction of the iPod and iPad, Johnson said in a Bloomberg Businessweek interview published Aug. 9.

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