Idea #1 is J.C. Penney Debt
o Why JC Penney? Convince to go and shop
o Everyone believes JCP will file for bankruptcy
o Bonds mispriced based on that assumption
o JCP operates in 49 states (no Hawaii)
o Slowing retail environment and they get rid of old CEO and bring in Ron Johnson
o Ron Johnson took a bunch of risk
o Coupons and promotions here historical
o Prior to new strategy $17 billion in sales $1.4 billion of EBITDA yet goes to -$500 million of EBITDA
o Able to raise $2.2 billion of new debt to get to $3 billion of debt and $2.5 billion on unsecured – but that have $2 billion of cash
o Interest payments are $250 million so hard to file of bankruptcy
o JCP survives unless the value differential
o Make ~25% return per year for 2 years in debt so you are making 80x RFR due to the believe that JCP will file bankruptcy
o Same stores sales are flat to up
o So you are creating the company
o Majority is telling you “you are wrong”
o “Nobody likes noise and don’t want to deal with it and that creates opportunity”