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.