JCPenney's Long Awaited Revolver Drawdown Arrives, Total Debt Rises To $3.8 Billion

Tyler Durden's picture

Just four days ago we noted the 'endgame' scenario that JCP appears to be heading in as they looked to raise new capital. It would appear things have escalated a little more quickly than hoped. Amid chatter of vendor concerns and what appears to be a slower process than they hoped for raising capital, the firm announced today, that "the Company has drawn $850 million out of its  $1.85 billion committed  revolving credit facility.  Proceeds will be  used to fund working capital  requirements and capital expenditures, including the  replenishment of inventory levels  in anticipation of the completion  of its newly  renovated home departments  next month." More worrisome is the fact that the firm managed to extract only $850 million on $2.3 billion in Inventory: while not completely worthless as we first suspected, it appears JPM is only willing to give JPM credit for about a third of its inventory at liquidation value. Remember that the revolver it is the cheapest financing JCP has in palce which raises the question - why not draw more?  Ask JPM.

This is being spun as positively as possible by the firm, but with CDS trading wide of 900bps and cash clearly burning faster than expected, things are not good at JCP (down 1.5% in the pre-market after being +3% earlier).

Finally, this means that JCP is now fresh out of encumerable "secured" assets and will be forced to raise capital via the equity route (unless someone has a real deathwish and wishes to buy unsecured HY debt, most likely issued by Jefferies) and given that Total Pro Forma debt rises to $3.8 billion on just about ($800MM) of EBITDA, this means that any additional capital raising will be through selling shares (to Bill Ackman only?) most likely somewhere in the single digits range.

 

Full Statement:

Company Draws On Credit Facility To Fund Ongoing Spending, Including Inventory and Renovations Ahead of New Home Launch

 

Working With Financial Advisors to Develop Strategic Financial Plan Going Forward

 

PLANO, Texas (April 15,  2013) - J. C.  Penney Company, Inc. (NYSE:JCP)  today announced plans to enhance the  Company's financial flexibility and  position.  As part of that process, and consistent with its previously stated plans, the Company has drawn $850  million out of its  $1.85 billion committed  revolving credit facility.  Proceeds will be  used to fund working capital  requirements and capital expenditures, including the  replenishment of inventory levels  in anticipation of the completion  of its newly  renovated home departments  next month. 

 

Chief Financial Officer Ken Hannah said, "Earlier this year, we increased  our revolving credit facility  in anticipation of  operating, working capital  and capital expenditure needs, especially during the first half of the year. As we near completion of the home department  transformation in over 500 stores,  we have been undertaking and will continue to experience a significant  inventory build and increase in capital expenditures."

 

Hannah continued, "The draw  under our revolver today  provides more than  our current funding needs  to ensure  our continued liquidity.  Moreover, we  will continue  to  explore  additional   capital  raising  alternatives  with   the assistance of our financial advisors."

 

Over the  past few  months,  the Company  has  worked to  improve  performance through changes  in  its pricing  and  promotional strategies,  including  the return of coupons, and the development of other new initiatives to drive store traffic and deliver the style, quality and value that its customers want.  The action today  bolsters  those  efforts,  as well  as  the  Company's  on-going financial position.