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