More hedge fund drama is on the way as Kyle Bass steps into the J.C. Penney Company, Inc. (NYSE:JCP) foray. According to Bloomberg‘s sources, Kyle Bass is betting on a comeback of the very troubled retailer with a long position in its debt.
Pursuant to Bass’ style of investment, his fund is hedging its longs in the company’s secured loans by selling CDS to other investors of J.C. Penney debt, in case the company defaults. Kyle Bass sees the event of J.C. Penney Company, Inc. (NYSE:JCP)’s corporate demise as an unlikely event, said the anonymous source. Yield on J.C. Penney’s bonds maturing in 2020 is not at 11.5% after accumulating a 125bps increase in the last month. Bass thinks that J.C. Penney’s apparel business is turning around and that the company has sufficient cash and credit to make it to 2014.
Meanwhile James Dinan of York Capital is doing very well on his short bet in JCP’s credit.
J.C. Penney thick with hedge funds
J.C. Penney Company, Inc. (NYSE:JCP) is already hot with the involvement of several big name investors who have reportedly clashed in their opinions of what is best for J.C. Penney. Bill Ackman’s Pershing Square Capital holds 17.7% of the company and is the largest stakeholder. Ackman recently resigned from JCP’s board after his call for the speedy replacement of interim CEO Mike Ullman did not find favor with other board members. Soros Fund Management also holds more than 9% of J.C. Penney, and he increased his position towards the end of second quarter. Unlike Ackman, George Soros has a passive stake but it was reported that he sided with JCP’s board against Ackman in the most recent tussle.
The hedge funders’ involvement in J.C. Penney does not end here. Richard Perry of Perry Capital bought a 7% position in the company, according to recent 13D filing. Perry, unlike Soros, wants a few changes to the company’s board and pushed for the return of Allen Questrom and Ken Hicks to J.C. Penney’s board.
Kyle Bass bearish on Japan and China
Kyle Bass’ position in J.C. Penney makes the already sizzling battle all the more interesting. Bass has publicly said that he respects both Bill Ackman and Dan Loeb, although his esteem for Loeb seems to eclipse the opinion he holds of Ackman. Bass has most recently taken a very bearish view of Japan and has a habit of calling all the hedge funds betting in favor of Tokyo’s stock market macro tourists. Bass’ Hayman Capital is shorting yen and Japanese government bonds through credit default swaps. Bass is also bearish on China, and his latest investor letter was dedicated to his views on the world’s second largest economy.
Read Kyle Bass’ Q2 letter on China here.
J.C. Penney has once again reported a dismal quarter today. The company missed earnings expectations but said the trends were improving. The hints of recovery are boosting J.C. Penney shares in pre-market trading, although it is more likely that the combined effect of Bass’ bet and J.C. Penney earnings are driving up the shares, J.C. Penney is up over 6% right now. The company reported a net loss of $2.66 per share.