Lender seeks to offload US$800m piece of loan made to retailer JC Penney

[NEW YORK] H/2 Capital Partners is seeking to sell almost US$800 million of a US$1.7 billion loan made to American department store chain JC Penney Co, according to people familiar with the matter.

The potential transaction was large enough to spook bondholders and traders in the market for credit-default swaps tied to the retailer.

Deutsche Bank AG is shopping the JC Penney's first-lien term loan due in 2023 on behalf of the hedge fund, the people said, asking not to be named because the deal is private.

The debt, which will be sold at auction, is being marketed at a potential price of around 87 cents on the dollar, a slight discount from current trading levels of around 89 cents.

Representatives for Deutsche Bank and JC Penney declined to comment. Connecticut-based H/2 didn't return messages seeking comment.

The retailer's first-lien bonds due 2023 slipped over 4 cents on the dollar Thursday to as low as 81.5 cents before recovering to 84.25 cents Friday, according to Trace bond trading data.

The cost of protecting JC Penney debt in the credit-default swaps market for one year rose as much as 7 percentage points upfront intraday to 23.5 points Thursday, before falling back to 17.7 points Friday.

Texas-based JC Penney has been focusing on managing its debt load as it seeks to turn around its operations. Bloomberg reported in September that the company was preparing for talks with its creditors ahead of the critical holiday season. Chief financial officer Bill Wafford said in a November conference call that the retailer was "proactively" managing its obligations and is working to maintain its US$1.7 billion of liquidity.

BLOOMBERG