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Confused By What Is Going On At JCP? Here's The Pro Forma Cap Table And The Cliff Notes
Ever since JCP entered the death watch with its absolutely abysmal 2012 year end results which saw the firm report something like negative $1.5 billion in Free Cash Flow (frankly we stopped counting there), and just ahead of the heavy inventory rebuild season so just as net working capital would demand another billion or so in cash, much has happened at the company.
On one hand, the entire management team has gotten the boot. On the other, the equity stakeholders have desperately dug in and not only do they refuse to abandon the sinking ship but are desperate to plough more bad money after good on hopes that there is some real estate value. Of course, Vornado did not think so, but what does Vornado know about commercial real estate anyway. That's their right of course, as is the right of JPM to fund $850 million of the firm's $1.85 billion credit facility draw down (what about the other half - liquidation inventory not so money good?), and as we have learned today, it is also the right of Goldman's investors (those who apparently are not familiar with Goldman's syndication effort for Movie Gallery) to scramble for yield and pump $1.75 billion into the company in the form of a term loan (terms still unknown) which will likely also be Movie Gallery'ed and pay at most 1 (or maybe 0) interest payments before the inevitable Chapter filing.
In brief - lots of changes. So many changes in fact that looking at the stock price one may not realize that in a very short amount of time, the company has incurred about $2.6 billion in gross debt ($850MM revolver draw down and $1,750MM new Goldman Term Loan). What these two major moves mean is that virtually all of the company's entire merchandize inventory, and some of its PP&E is now spoken for and encumbered. It also means that any new debt will not be secured, which for a company that already has 10 unsecured bonds may be tricky.
The cash flow metrics are so disgusting and meaningless we won't even put them up on the chart above.
Of course, the key question is what will all this newly created cash be used for.
The company had $930 MM in cash as of December 31, 2012. To this we add the revolver proceeds, and the term loan net of the reported prerepayment of the $255MM debentures due 2023, to get a grand total of $2.345 billion in additional cash and a pro forma grand total of about $3.3 billion.
Assuming an inventory rebuild need of $1 billion, and ongoing cash burn of about $250MM per quarter, this means that the company just bought itself 8-10 quarters of extra time, assuming now dramatic deterioration in the business model, before all the cash runs out, and before the company is forced to file as it has no more unencumbered assets. This also assumes that the company's vendors have not gone COD and/or demanded prompt repayment of the total $2.5 billion in Accounts Payable. If that is the case, JCP has bought itself at most 2-3 quarter of breathing room as AP suddenly becomes a use of cash.
In summary: it will be clear very soon if this last-ditch gamble to preserve the company will achieve anything.
Until then, we sit back and watch. The next earnings report is on May 15. It should be quite amusing.
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WHy not let this old decrepid fucker die already.
Watch "Weekend at Bernie's", and you shall see why...
Meh, I'll keep saying it in response to altered reality...
Matrix Metrics.
Isn't this the one Ackman was shorting before he was 'Icahnated'?
How's he doing with this?
Granny kept this thing alive,
but then in the board room a junior executive says: "hey lets put gays in a commercial, that will really show how hip we are".
CEO: "By george I think youve got something there junior, as I love being gay and all". Hugs and smooches around the room, with effeminate high fives, squeels of delight and ass pats.
result: granny barfs, boards her crown vic and flees never to return.
Yohimbo, you nailed it. Can you also summarize the sequel where they bring in a CEO whose experience was rooted in a premium product?
Macy's is next, then Lord and Taylor, etc., etc., until all that is left is Amazon, Nordstrom, Walmart and Target (and Dollar Gernal out in the boonies).
(and Dollar Gernal out in the boonies).
That's why out in the boonies where I live we call it ..."Boonie-Mart".
My cash flow has been helped simply because I don't have to drive 30 minutes to the nearest Chino-Mart...er....Walmart. The rest of what I need comes from Amazon or Ebay. That's when, after all, I really need anything at all. I've learned very quickly to re-use and repair or buy used and cheaply on E-bay or Craigslist.
Screw the consumer rat race, screw the American kleptocratic regime and their puppet masters in China and the Fed.
Let's not forget to include "Death By Dillard's" in the list of soon to be gone and forgotten. In case some ZHers are not familiar with that phrase, Dillards earned it by years of mysterious deaths among people, usually black or hispanic, who were detained by store security on 'suspicion' of shoplifting.
It is easy to predict that JCP will file and sell off its real estate at pennies on the dollar. The same has been said time and time again about Sears.
Since Sears has been on ZH death watch (for over a year): Has Sears gone under? How have people shorting Sears done?
Will JCP go under? Why do Soros and Ackman (not exactly "honey badger" fund managers) dig in more?
With gigantic short float and an investment community pathologically immune to common sense financials, I bet JCP hits $20 again before it hits .001.
The new JCP management will pump some BS good news into the market to save their careers or even just renew their short-term contracts with JCP.
Watch and see the pump machine in action.
What you say could be true, but it is just half the truth, the other half being: "... until it doesn't!"
The math ZH has posted is accurate and ultimately justifies a lifespan of 3-4 quarters continued life for JCP.
The ongoing financial situation at JCP will be closely scrutinized for the next 6 months.
"Until it doesn't" time is end of year 2013. Between now and then is tremendous opportunity to parade some BS investment thesis and sucker countless lemming MOMO desks and Soros-wannabe fund managers into a short squeeze.
I agree, nonetheless I'd like to advise you to be careful. This could gain speed unexpectedly. Watch out!
The January 2015 puts at the 10 strike are pricing at 1.85. Seems like a no-brainer.
Since Sears has been on ZH death watch (for over a year): Has Sears gone under? How have people shorting Sears done?
You do know that Sears owns K-Mart.....right? Have you seen K-Mart's parking lots compared to a typical Walmart parking lot? Ever been in a K-Mart recently? How about the last 5-8 years?
Been in a typical Sears store at the local zombie hang-out...err...shopping mall?
Speaking of zombies.....they're dead....they just don't know it yet. But the bullet to the head has already been delivered. It just has to reach its destination.
JC Penney's On The Dollar
Either that or just its that they keep trying to sell bollocks that no-one whats or needs?
· There is limit of indebtedness covenant language specific to the JC Penney 7.125’s of 11/15/23 (708160BE5) which apparently is triggered by the Penney’s Goldman Sachs loan commitment.
The bid for this issue looks to be up 20+ points from the last trade on Friday; something around 125. Other JCP issues appear to be benefitting and trading higher as well.
Please hammer, dont hurt em!
lol....fun to watch...but shit, if you've got a a few billion of OPM (other people's money) jimmy crack corn they dont give a shit!!!
BitCoin Jesus can't keep up with demand since he started offering Ingram Micro products in BitCoins. JC Penny with all their high tech sales gimmickss might try the same. Couldn't hurt.
jcp loves round numbers. everything was either $20 or $40 the last time I was in there. You can tell they put a lot of thought into their pricing. [/sarc.]
the Penneys by us should just have everything written in spanish as well as have it be the official language of the clerks(sorry-"sales associates")
Silly Tyler. You can't win if you don't gamble.
When 50% of your customer base holds deep religious beliefs, it's not a smart move to hire someone like Ellen Degenrous as your spokesperson.
That's correct, one would be well advised to "baffle 'em with bullshit" instead.
Would easier credit terms for customers help?
No! JCP can't die! No company is allowed to die! Because jobs! Because think of the parasites! Because <whatever>!
All this crap reminds me of the stupid hippies and land managers who absolutely refused to let forests burn... because fire bad! Because we love trees! Because property values! You name it. It wasn't until the inevitable natural processes took hold and did a super-burn through everything and everyone that people realized, "gee, if you keep mucking with the natural order of things, you may get what you want for a while but the blowback when things break is a BITCH".
We're going from TBTF to utter Zombieland commerce. The whole situation is absurd. Things that need to die should die and clear the way for new growth, it's that simple.
I call this stage "Ponzi life support".
Keep the game running until the big players can get out and replace their holdings with Muppet investors.
Expects lots of good press about a immanent JCP turn around with a short run up in stock price as the institutionals find their chairs. Then the music stops ....: oops ... Sorry ... No seats for the Muppets.
"revolver draw"
Why do I keep imagining it as the end of a mexican stand-off ...
This is a tale of retail foreplay of things to come.
The Fed's cashish detox will be hard to bear, when bare.
The long tradee of JCP might have nothing with retail but everything to do with real estate bubble # 2. This bubble, unlike the first one created by credit would be created by money.
Totally a speculative angle.
Maybe a hedge to treasuries short actually.
I know it is outrageous, but what the Fed does is outrageous.
EXAMPLE OF CHINA.
China had first a real estate frenzy initially when Silver dropped post 1929 (they were in a silver standard). Then the US bought silver and created deflation in China so real estate crunch. Next China went off Silver standard in 1935 and printed money and you had real estate bubble # 2 based on money this time while the first was based on credit.
OTHER CONSIDERATION
Now that the inflation is ~low~ thanks to wacking Gold and Gold is not favored momentum item for money printing by professional money managers. (It will again once the printed money (MB) leaks in the economy, and this involves 0 increase in credit and newly created currency backed credit wrongly called ~monetary~ aggregate M2*), money managers need to find the next item, since real estate is ~behind~ stocks in many respects, real estate is new old asset to chase with the newly printed money. And voila, ~investing~ explained.
The only entity which creates money in the old system is God (Gold and Silver) and you have to work to get it. In the new system it is the Fed, and no work is required. Other banks do not create money, they create currency.
Nothing is happening at JCP except Goldman is desperately trying to position the carcas so the management can retire to Staten Island.
Yes...about that "valuable real estate..." ...thos ewho remember Woolworths had the same idea....the stores sit on 'valuable real estate'...well check history to see how that turned out for the equity shareholders.....
"Woolworths is expected to be sold at the nominal price of £1, but if you own it don’t think you can sell it as the stock was yesterday suspended for the second time this week. The stock has lost more than 90% of its value since the beginning of the year. It had already fallen by 62 percent in 2007."
Full [sad] story here:
http://whatthefinance.com/stockmarket-watch/woolworths-bankruptcy-93
"Yes...about that "valuable real estate..." ...thos ewho remember Woolworths had the same idea....the stores sit on 'valuable real estate'...well check history to see how that turned out for the equity shareholders....."
Here's a creepy factoid that dovetails into your factoid CheapBastard.......
On December 26, 1970, Penney fell and fractured his hip. Just a few weeks later, he suffered a heart attack and never fully recovered. He died February 12, 1971. The Reverend Dr. Norman Vincent Peale delivered the eulogy at Penneys' funeral. Penney was buried in the Bronx section of New York City. His grave, at the Woodlawn Cemetery, is not far from that of fellow retail entrepreneur, F.W. Woolworth.
Also consider this......Walmart could be blamed in part for killing the department store model. Well....check this out. And then reread the above......
After the 1929 stock crash, Penney lost virtually all his personal wealth, and borrowed against his life insurance policies to help the company meet its payroll. The financial setbacks took a toll on his health. Penney checked himself into the Battle Creek Sanitarium, where he was treated. After hearing the hymn "God Will Take Care of You" (written by Civilla Durfee Martin) being sung at a service in the hospital’s chapel, Penney became a born-again Christian.[2] Even after relinquishing daily operating management of the company, Penney continued his active involvement in managing the company and its stores. In 1940, during a visit to a store in Des Moines, Iowa, he trained a young Sam Walton on how to wrap packages with a minimal amount of ribbon.
Things that make you go...Hmmmm !
It's the dash for trash. I see no essential difference between buying Penney stock or many other blue chips. All that money has to go somewhere- and right now- that somewhere is US equities. Business fundamentals matter not- just get on out there and buy some shit paper.
Tobacco shares are not trash.
My sister retired from JCP management in Plano, Tx last year. Does this mean her retirement plan might be in jeopardy?
It all depends on what type of retirement plan it is, who funded it and whether it was fully funded or underfunded.
saying they have 4 quaters left assumes a burn rate that stays constant. As the rats realize the train track is running out they will "do things" with the money faster and faster - the burn rate will accelerate as entrenched management prepares for the prepack.