Following much speculation last week, J.C. Penney (JCP) confirmed Monday that it took an $850 million cash infusion from its $1.85 billion revolving credit facility as it looks to acquire necessary funding to fuel the continuation of its tumultuous turnaround.
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Penney also said on Monday that it will “continue to explore additional capital raising alternatives” with the assistance of its financial advisors.
"The draw under our revolver today provides more than our current funding needs to ensure our continued liquidity,” Penney Chief Financial Officer Ken Hannah said in a statement.
The move comes a few months after Penney raised the credit facility, anticipating a ramp-up in capital expenditures and significant inventory build as it completes the transformation of more than 500 stores as part of a broader overhaul.
The ailing retailer reportedly hired Blackstone Group (BX) last week to advise how to best turn the company around financially, according to The Wall Street Journal. Part of additional cash-raising strategies could be selling a minority stake, the Journal reported last week.
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Penney has been unable to stem a decline in sales that was partially to blame for a loss of nearly $1 billion last year. Penney fired its CEO, Ron Johnson, last week after his failed “no sales” promise proved a huge disappointment, and replaced him with former chief Mike Ullman, a move that has met both criticism and praise.
The Standard & Poor’s ratings company said Monday that Penney’s decision to borrow $850 million under the facility will have “no immediate impact” on its ratings or outlook. In late February, S&P predicted Penney would seek additional capital or borrow under its revolving credit facility to fund operations.
However, the ratings company noted that Penney’s liquidity position remains “less than adequate,” and believes the rating on the retailer’s unsecured debt could be negatively affected if the company were to increase its total secured debt beyond the revolver.
On a positive note, S&P said it believes there will be “further meaningful changes” over the next few months as Ullman reassess the “shops,” as well as the company’s promotional and marketing strategies that have been largely to blame for its lackluster fiscal 2012 performance.
It also believes that the judge’s favorable ruling last week following a bitter courtroom battle with rival Macy’s (M) allowing Penney to sell unbranded Martha Stewart products, will benefit the retailer.
“In our opinion, this will not materially affect operations over the next few quarters, which we forecast will be weak,” S&P credit analyst David Kuntz said in a note. “We expect the company's financial risk profile will remain highly leveraged during that time.”
Shares of Penney edged marginally lower in recent trade to $14.51.