JCP Shares Rebound; Retailer Pleased with Progress

Published September 26, 2013

| Reuters

Retailer J.C. Penney Co Inc (JCP) said it was pleased with the progress of its turnaround efforts and still expected positive comparable-store sales trends coming out of the third quarter and throughout the fourth.

J.C. Penney shares, which fell as much as 8 percent in premarket trading on Thursday, reversed course on the company's statement and were up 1 percent just ahead of the opening bell.

The company's shares fell 15 percent on Wednesday after Goldman Sachs said it expects the retailer's sales to improve more slowly than expected, adding to concerns that the company may not be able to boost its cash reserves ahead of the crucial holiday season.

J. C. Penney is looking to raise up to $1 billion in new equity, Reuters reported on Wednesday.

"We still believe JCP has ample liquidity for 2013, but if cash burn is running worse than our estimates, the company may need to raise capital to cushion against a potentially challenging holiday season," Citigroup analyst Deborah Weinswig said in a note.

Weinswig kept her "sell" rating on the stock, cutting her price target to $7 from $11.

J.C. Penney shares were trading at $10.15 before the bell on Thursday. The stock has fallen about 50 percent this year.

Weinswig also said the turnaround was taking longer than hoped in a softening macroeconomic environment.

The cost for insurance against a J.C. Penney default has shot back to near record-high levels over the last week.

The company, which has a "CCC+" credit rating from Standard & Poor's, reflecting a substantial risk in owning its debt, has about $2.6 billion of outstanding bonds.

The company's benchmark 5-year credit default swap contract price surged by more than 13 percent on Wednesday, according to Markit data.

The cost to insure $10 million of J.C. Penney bonds against a default for five years now requires an upfront payment of about $2.2 million plus quarterly payments of about $300,000 for the duration of the contract. The contract's pricing reflects a default probability of nearly 65 percent.

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