J.C. Penney Company, Inc (NYSE:JCP) drawing big dollars from credit line

by Patrice Washington | Tuesday, Apr 16, 2013 | 418 views

Northern, WI 04/16/2013 (usastockreport) – J.C. Penney Company, Inc (NYSE:JCP) (Closed: $14.39, Down by 1.57%) has drawn $850 million from its rotational credit facility and has said that it is also working with its advisors on various other capital-raising options even as it is in efforts to undo the harm that the dip in last years sales had done. The draw-down that it has on the credit line of $1.85 billion will be relegated to capital expenditure as well as for inventory replenishment. Ron Johnson the former Chief Executive Officer of the Plano, Texas-based company had failed to restructure the department store chain. This had led to a 25 percent drop in sales and had started draining-out the company’s cash reserves.

Critical situation
Blackstone Group L.P (NYSE:BX) (Closed: $20.49, Down by 3.44%) has been hired by J.C Penney to help with evaluation of a variety of options to raise a minimum of $1 billion. This amount includes the sale of stake to Blackstone said some people who were familiar with the matter. Market watchers have been waiting it out to see exactly how urgent the situation is. Tapping something of this value would generally mean that the matter is a fairly urgent one. Market analysts expect that $160 million from its credit line will be used in the first quarter while $600 million will be used in the following one.

In the year ending Feb 2, $10 million of cash was used in J.C Penney’s operations. This was the first time the company has done so since the year 1987. In February it increased the size of its revolving credit from $1.5 billion to $1.85 billion and also got permission for an expansion of upto $2.25 billion.

In reverse gear
Last week, Myron Ullman was reinstated as the J.C Penney Chief Executive Officer and has begun working on undoing some of the strategies that Johnson had implemented. The retailer will be discontinuing the reduction of discounts and will also be adding coupon advertising to the newspapers, a practice that had been discontinued by Johnson. This has been announced last week by the company’s largest shareholder, the activist investor Bill Ackman. On Feb 27 Kenneth Hannah, the Chief Financial Officer told analysts that the J.C Penney had a lot of liquidity and that it would easily be able to fund the transformation plan that Johnson had planned for the retailer chain that was over a century old. He had said that cash from operations would be used.

A fortnight later he said that he was okay with tapping the company’s credit line. In a March 13 presentation Hannah said that the revolver is meant to be used for working capital requirements.

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