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Cash Burning J.C.Penney Scrambles To Raise $1 Billion, Hires Blackstone
It should come as no surprise that struggling retailer JCPenney, which has been burning cash at an unprecedented rate, and which just wasted two years of turnaround time following the sacking of its now former CEO Ron Johnson only to return to the same strategy that Bill Ackman blasted as recently as 2012, has been in dire cash straits. However, while everyone expected the company to announce that it would satisfy its immediate cash needs by drawing down in part or in whole on its recently amended and restated, and currently undrawn, $1,850 billion revolver with JPM as administrative agent (as every other company does when it needs a brief liquidity burst), nobody expected that JCP, whose stock yesterday hit a 12 year low, would be forced to hire Blackstone to advise in on raising cash. Which according to the WSJ it just did.
J.C. Penney Co. has hired bankers at Blackstone Group for advice on how the department-store chain can shore up its fast-eroding stockpile of cash, people familiar with the matter said Thursday.
The company is seeking to raise about $1 billion in cash, the people said. One option could be to sell a minority stake in Penney, and the company has reached out to possible investors including private equity firms, the people said. Other fundraising options on the table couldn't immediately be determined.
Couple of observations here:
- Raising capital, i.e., selling equity in part or in whole, at a time when your stock is already plumbing "generational lows" is hardly confidence-inspiring. Those same investors who like JCP's assets and are given the option to buy it directly or indirectly at $14, can just wait a few short months and buy those same assets in a stalking horse bid following a bankruptcy filing.
- The cheapest, and readily available, capital available to the company is its revolving credit facility. According to its 10K, there were no borrowings as of February 2 (aside for $281 million in standby L/Cs) on its recently amended revolver which has a total size of $1.85 billion. That the company is avoiding this option is the biggest red flag (more on this below).
- Why hire Blackstone and not Goldman which has by far the deepest rolodex of potentially interested investors and which can onboard any exposure on its balance sheet, if only briefly before its "structures" it away? Because Blackstone, while masking as an investment bank, really has one of the best restructuring teams in the industry. it is best to be prepared to go straight to Plan B if and when the above capital raising fails. At least people within Blackstone will be intimately familiar with JCP's data which can be ported from its banking group straight to its restructuring and reorganization group.
- How will JCP's vendors react when the realize that the firm is suddenly facing a liquidity crunch? The firm had $2.5 billion in assorted accounts payable. What happens now that vendors just say no to T+30/60/90 terms, demand immediate repayment or else no more product is shipped and going forward switch strictly to advance payment and Cash on Delivery terms? Because they know very well that the last payable in will be merely a claim in an eventual bankruptcy filing, likely getting pennies on the dollar. In other words, suddenly JCP's $2.5 billion in Payables has become a huge liability, one which will be a massive drain of cash in the coming days and weeks.
Another quick look at the credit facility. From the 10-K
On January 27, 2012, J. C. Penney Company, Inc., JCP and J. C. Penney Purchasing Corporation entered into a revolving credit facility in the amount up to $1,250 million (2012 Credit Facility), which amended and restated the Company’s prior credit agreement entered into in April 2011, with the same syndicate of lenders under the previous agreement, with JPMorgan Chase Bank, N.A., as administrative agent. The 2012 Credit Facility matures on April 29, 2016. On February 10, 2012, we increased the size of our 2012 Credit Facility to $1,500 million and on January 31, 2013, we increased our 2012 Credit Facility by an additional $250 million to $1,750 million.
The 2012 Credit Facility is an asset-based revolving credit facility and is secured by a perfected first-priority security interest in substantially all of our eligible credit card receivables, accounts receivable and inventory. The 2012 Credit Facility is available for general corporate purposes, including the issuance of letters of credit. Pricing under the 2012 Credit Facility is tiered based on JCP’s senior unsecured long-term credit ratings issued by Moody’s Investors Service, Inc. and Standard & Poor’s Ratings Services. JCP’s obligations under the 2012 Credit Facility are guaranteed by J. C. Penney Company, Inc.
Availability under the 2012 Credit Facility is limited to a borrowing base which allows us to borrow up to 85% of eligible accounts receivable, plus 90% of eligible credit card receivables, plus 85% of the liquidation value of our inventory, net of certain reserves. Letters of credit reduce the amount available to borrow by their face value. In the event that availability under the 2012 Credit Facility is at any time less than the greater of (1) $125 million or (2) 10% of the lesser of the total facility or the borrowing base then in effect, for a period of at least 30 days, the Company will be subject to a fixed charge coverage ratio covenant of 1.0 to 1.0 which is calculated as of the last day of the quarter and measured on a trailing four-quarter basis.
On February 8, 2013, J. C. Penney Company, Inc., JCP and J. C. Penney Purchasing Corporation amended and restated the 2012 Credit Facility in the amount up to $1,850 million (2013 Credit Facility) with JPMorgan Chase Bank, N.A., as administrative agent. The 2013 Credit Facility continues to be an asset-based facility, in which borrowing availability varies according to the levels of inventory and accounts receivable, and matures on April 29, 2016. The 2013 Credit Facility increases the letter of credit sublimit to $750 million from $500 million and provides that the Company may at any time prior to the maturity date request that the aggregate size of the facility be increased by an additional amount not to exceed $400 million.
Most curiously:
As of February 2, 2013, no borrowings were outstanding under the facility other than the issuance of standby and import letters of credit, which totaled $281 million
JCP had $2.341 billion in Inventory at December 31, 2012, which means that applying the customary 15% ratio to this amount would leave some $2 billion in credit availbility, or enough for substantial facility borrowings. If one was the CFO of a company in need of cash and not in need of spooking vendors this is what one would do, not having a WSJ article describing your suddenly precarious liquidity situation.
So why didn't JCP do it? Is its inventory so impaired in the eyes of JPMorgan, it refused to grant the company any revolver exposure based on its analysis of the inventory's "liquidation value" and fears of an imminent bankruptcy? Or is there something much more fishy going on here?
We are confident we will learn much more shortly, now that the Death clock for JCP has just started beating and things will move very fast. For anyone wishing to learn more, we suggest reviewing the Linens'N'Things bankruptcy case study: we have a feeling it will be very applicable in this case.
What is perhaps most stunning about this whol situation is that it was a few short hours ago at a luncheon in New York that Ackman himself may have not only violated Reg-FD telling reporters a part of his presentation is "off the record" when it clearly wasn't, but that he said this:
What the company needs now though, is somebody who can "stabilize the place" and "calm the vendors", Ackman said, calling Ullman "the right guy at the right time".
Even the most naive investor knows that you don't "calm the vendors" when a WSJ blasts to the entire world you have a $1 billion liquidity crunch. Perhapos Icahn was right and Ackman truly is among the most clueless, if certainly very lucky, of investors out there.
Finally, as JCP itself so conveniently, if boilerplatedly, put in its 10-K, "The future success of our business depends on our ability to generate positive free cash flow (non-GAAP)." How right it was.
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Jesus, just carve this whale up while there is still something left on the bones. Creditors are going to get zippo by the time Blackstone sucks this thing dry.
As fast as it's deteriorating, the Martha Stewart, JCP, Macy's lawsuit might become moot.
I can't even remember the last time I walked into a JCP!! I shop almost exclusively on Amazon.com. Fuck you Illinois taxes (and retail margins)!!
FIRESALE!
Nothing here that couldn't be solved by Ben keeping the presses running an extra two hours.
Must buy bitcoin!
New trading symbol?
JCPBXBK
The YOU'RE FIRED! SALE...
No shit, Martha better short JCP pronto!
Shudda hired Goldman.
Then again, Goldman would take their money, fuck them over, call them "muppets", and short them all the way to zero.
The beginning of the end for jcp. Blackstone will either sell the marked up skimmed out securities to calpers or they will strip any remaining value from jcp or both.
...... emboldened by recent events, Sears is currently the fly climbing up the elephant's (WalMart's) ass with throughts of rape on it's mind. We're finally going to give WalMart the screwing it deserves!!!
MSM headlines today were strong retail numbers coming out. How could that be???
They were shity. USD Chain Store Sales (YoY) 1.6% 1.7% (was revised from a lower number.)
MSM are full of swamp gas.
It is the new communist math. 2 + 5 = 97.
Common Core !
Everyone knows 2 + 5 = 25
#Logic
Ackman bets HLF will go to zero..... not quite.
Ackman bets JCP will go to the moon but it's likely headed to zero.
Bad year for him, at least as far as the investments he's spouting off about in the media.
can i has me some jc penney brand jeans?
yeah, 'cause you'll be able to ebay them soon for a twinky-sized dollar amount [not].
I think I read somwhere that the real estate that JCP owns is worth a lot. They could essentially turn themselves into a successful reit if they wanted to. Not sure if that is true.
Didn't Chesapeake need the same type of lifeline? They came through it.
You may be thinking of Sears(basically a real estate holding company). JCP does own some property but the majority of its stores are leased. MANY of which are coming due for renegotiation. I personally think they'd be better off closing the doors.
Death knell.
I was in their store 2 months ago. I purchased 3 work shirts. When I was inline waiting to be wrung up the woman in front who was paying for her purchases was saying how great it was that the store people were using ipads. She went on to say how this alone would help turn the company around. My wife and I were laughing our asses off.
When it was my turn to checkout, the salesman scanned my shirts with the ipad and then swiped my card with it. He swiped it like it was some great magic trick . He then turned to the old standby machine , pulled the paper out so I could sign it. After I grabbed my receipt I said " Your store will be closed in the next 12 months". I smiled and walked away.
True story. I am amazed that any individual would think by simply using and ipad the company would be successful.
That jcp you were in must of been in Cupertino.
Lol, you're a fucking douche. As if the decision to use iPads was his.
He probably doesn't need that job to buy food or anything. I hope your gold gets confiscated. Bitch.
You are a prime example of why culling is even discussed. Asswipe.
Aww, you upvoted your own comment.
Did you know Ron Johnson was a great magician?
He made sales, earnings, dividends, coupons and customers all disappear.
Retail analyst Howard Davidowitz made the best call on JCP. He knew the hire of RJ was a disaster from the start.
http://finance.yahoo.com/blogs/daily-ticker/j-c-penney-catastrophe-now-n...
It's amazing how a CEO can destroy a company so fast.
We should send Ron Johnson to pay Obama a visit, maybe he can make the POTUS disappear too.
Unfortunately, RJ made a lot of JC Penney employees disappear too. They fired over 40,000 workers in 15 months while he was there. He ruined lots of peoples lives with his retail vision.
http://money.cnn.com/2013/03/21/news/companies/jcpenney-workers/index.html
Yep, crony capitalism sure sucks ass.
He'll probably get a job on Obama's new "Ultra-New-Super-Improved-Sure-Fire-Guranteed-To-Generate-Jobs-Or-Barry's-Gonna-Buy-You-A-Brand-Fuckin-New-Chickenpot"
"Jobs Council"
JCP Yoga class anyone? hehe he
That's so funny. Lets go to JCP and do some yoga. What they really need in the store is a Ruger boutique, a Glock boutique, a Smith & Wesson boutique, ..., an ammo boutique, etc. Maybe put in a shooting range as well. JCP used to sell guns.
how about an urban combat training center for civlilians
With full stocked .308 Win, .22LR, and .223, 9mm and all brass shelves.
Make a fucking killing.
Figuratively speaking. Of course.
MOAR MOAR MOAR MOAR!!!!!!!!!!!!!!
Surprised JCP was up today, guess KPMG is not their auditor.
Putting the Penney in Penney stock...
Good one.
JCP is the canary in the Mall Reit coal mine. Big Box retail is done.
YES, the REIT stocks are close to or at 52 week highs.
The govt saved the banks and GM from bankruptcy, perhaps JCP is tbtf and should get the same treatment. Nothing should fail.
I just read that they have some 116,000 employees, but few to none are unionized (good thing) and so my bet is that they will be let to fail. The BLS can just seasonally "adjust" the result and announce employment as up. hujel
Part of Johnson's turnaround plan was to source more product directly and to license the names of previous vendors.
JCP would gain more margin and the vendors wouldn't need to worry about inventory. The would get paid 6-10% of the sale once the sales are completed.
This has been going on everywhere at retail. All Reebok apparel and socks at Dick's are not produced and distributed by Reebok. The are produced by Dick's in China and have a Reebok label slapped on them. Adidas baseball is also a badge engineered product.
I guess it doesn't matter, there are very few true brands left. Labels are nothing but marketing. Is there really a Nike product when Nike shoes are made in the same factory as Adidas?
Most of the billions outstanding in accounts payable at JCP is the result of the store renovations. I don't think they will be able to finish painting the stores when the contractors don't get paid.
Nike makes shit shoes. Running or golf. They fall apart. I wonder who JCP has "billions" in A/P. That is crazy.
JCP, who you gonna call??
hey Ben! you gonna save JCP too?
Regardless of how Blackstone can see clear to getting their pound of flesh, mere mortals like us shouldn't have anything to do with JCP in any way that matters. Not JCP stock, none of their bonds, no exposure to mall management companies that are going to lose anchor tenants, certainly not a job that relies on JCP in the least.
Half the enterprise value of the company is equity. $3.2bn
The equity is a source of cash
No book / site / teacher has taught me as much as ZH has done
That arrogant little bitchz Ackerman needs a good little beat down right about now.
Welcome to 2013 bitchz!
Bill Ackman is probably reading this post
The Chinese year of the snake. This year the snake is venomous.
Too late for JCP. It's done.
The vultures like Blackstone will siphon whatever is left.
retail is dying a slow agonizing death as the consumer is running on empty
zirp then neg. rate - they pay you to purchase on credit; rebate interest against minimum payment.
96 month financing on super duty truck(1 ton truck to buy groceries)? 40 year mortgage?
come on get creative! jc penny towels?
Because Blackstone, while masking as an investment bank, really has one of the best restructuring teams in the industry.
WTF they are snakes who suck the blood of life from any living organism
got it - hire blackstone America's Landlord - irony that JCP's customer base used to own the houses that Blackstone now controls as part of their rental portfolio.
JC Penney never knew who they were. No one who was charged with fixing them knew either.
Be alert - this is a DIP.
JCP use to have little robots running around the hallways deliverig mail.....should have died 20 years ago.
http://www.youtube.com/watch?v=62jIoKgAvGE
Good lesson here seeing how one person can bankrupt a company. Where were the Directors in all this? Too bad they all draw down massive salaries and bonuses despite their grim performance....not many business can do this, esp small businesses.
JCP used to be a great chain for the middle class. Where I grew up each of the malls had a JCP, the prices were affordable and for many years they did well catering to that crowd. I come from a large family and it was a regular stop for my parents. In my book this was a true American retail icon.
Their difficulties over the last 10 years or so can easily be shown to track the decline of the middle class, which is itself rapidly becoming an endangered species.
While this was easily predictable by anyone paying attention to the sector, it is nonetheless sad to see them in the throws of death.
I gave up on the smartwool socks awhile back and started buying wool silk blend dress socks @ JC Penny. One third of the price and good quality. Sorry to see them going down the shithole.......
JCP hires Blackstone? What? They didn't hire Bain?
Fuck Bain - they lost that erection.
Election. Sorry.
This is a direct model for the US Treasury next year, when Obamascare kicks in.
Blackstone needs to hold out until that happens, and then can LBO Timmy Geithner, Inc, et al. & open a massive discount store to rival WalMart, to whom they will lose in an antitrust suit in 2015.
Then the vultures descend.
So how's the alienating traditional customers so you can cater to fags working out JCP?
corzine was johnson's advisor on how to sink a co while having no personal risk, who wanted JCP dead?,, a long list consolidation in a shrinking economy. the sick and weak will be culled by wolves and vultures - Ben's printing will not save JCP.
one of the few benefits of vulture capitalism for me is
GOING OUT OF BUSINESS SALE!
"this is f%^&kin' awesome"
JPM doesn't need jeans at 3 bucks, but I do