Tags: Kyle Bass | JC Penney | Comeback | Loan

Kyle Bass Said to Bet on J.C. Penney Comeback With Loan Deal

Tuesday, 20 Aug 2013 07:44 AM

Hedge-fund manager J. Kyle Bass is betting on a comeback by J.C. Penney Co., the retailer roiled by falling sales and a dispute with investor William Ackman, according to a person familiar with the matter.

Bass, who focuses on corporate turnarounds, has accumulated a long position in J.C. Penney over the past two weeks by buying the company’s secured loans, said the person, who asked not to be named because the information is private. He has also sold a type of insurance called credit-default swaps to other investors that pays off only if the Plano, Texas-based company defaults on its debts, an event he considers unlikely, said the person.

J.C. Penney has lost a third of its value this year as an overhaul started by former Chief Executive Officer Ron Johnson fails to win new shoppers and alienates longtime customers. Ackman, whose Pershing Square Capital Management LP is the company’s largest shareholder with almost 18 percent of its shares, resigned from the board last week after seeking to oust Chairman Tom Engibous and accelerate the search for a new CEO.

Bass, 43, founder of Hayman Capital Management LP in Dallas, shares a bullish view on J.C. Penney with investors Soros Fund Management LLC and Glenview Capital Management LLC, the company’s second- and 10th-largest investors. Both shareholders sided against Ackman in the spat over management.

Chris Kirkpatrick, Hayman’s general counsel, didn’t immediately return a voice-mail message left at his office after regular business hours.

J.C. Penney closed Monday at $13.22 in New York. It has fallen 33 percent this year, compared with a gain of 15 percent by the Standard & Poor’s 500 Index.

Declining Sales

J.C. Penney is struggling to recover from its worst sales in more than two decades. In the fiscal year ended in February, the first year of Johnson’s attempted turnaround, revenue plunged 25 percent to $13 billion.

Analysts predict a wider second-quarter loss and the ninth straight sales drop when J.C. Penney reports later in the U.S. The quarter was the first entirely under CEO Mike Ullman, who returned in April to replace Johnson.

Ullman and Engibous have the board’s “overwhelming support,” J.C. Penney said on Aug. 13.

The company has since said that it entered into an agreement with Ackman to allow him to start selling shares in November.

Expected Rebound

Bass is betting that J.C. Penney can stabilize sales and has enough cash and credit to carry it until the 2014 holiday season, said the person familiar with the matter. In the hedge- fund manager’s view, the company’s apparel business is rebounding and it is sitting on valuable real estate.

Bass, a former salesman for Bear Stearns Cos. and Legg Mason Inc., started Hayman in 2006 to focus on corporate turnarounds, restructurings and mortgages. The firm made $500 million amid the U.S. subprime crisis and is now betting on a Japanese fiscal collapse.

Credit-default swaps insuring the debt of J.C. Penney against non-payment jumped the most in more than a week, according to data from CMA in New York.

The yield on the company’s notes due 2020 has surged 178 basis points since July 31 to 11.54 percent, set for the biggest monthly increase since the securities were issued in 2010.

Management Changes

Ackman joined J.C. Penney’s board in February 2011. He soon pressed to replace Ullman, who had been CEO for more than six years, with Johnson, the executive who helped build Apple Inc.’s chain of retail stores.

Johnson, with Ackman’s support, instituted sweeping changes at J.C. Penney, including ending discounting and remaking the stores into collections of boutiques. The strategy flopped with the chain’s customers, resulting in a $985 million loss for the year ended in February.

The company later ousted Johnson and reinstated Ullman who revived price cutting and brought back merchandise to attract core customers.


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Hedge-fund manager J. Kyle Bass is betting on a comeback by J.C. Penney Co., the retailer roiled by falling sales and a dispute with investor William Ackman, according to a person familiar with the matter.
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Tuesday, 20 Aug 2013 07:44 AM
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