J.C. Penney Co. Inc. Monday said it
drew down $850 million from its $1.85 billion revolving credit facility. Fitch
Ratings views this as a stop-gap measure before permanent financing is put in
place.
Fitch issued the following statement:
"We believe J.C. Penney will need to tap into additional funding to cover
a projected free cash flow (FCF) shortfall of $1.3 billion to $1.5 billion in
2013, which could begin to strain its existing sources of liquidity. Upside or
downside to our FCF estimate will depend on the speed and effectiveness of
critical decisions over the next weeks around pricing strategy, merchandising
decisions (what new shops to build out and what to forego), and capital
expenditures.
"While the draw itself has no immediate credit impact, we will continue to
closely monitor the company's liquidity position. We downgraded the Issuer
Default Ratings (IDRs) on J.C. Penney and J.C. Penney Corporation, Inc. to 'B-'
from 'B' on February 28 and the Rating Outlook is Negative.
"Our primary concern remains with the company's ability to secure the $1 billion
or so needed in permanent financing in 2013 to fund operations and peak seasonal
working capital needs. We expect J.C. Penney will need to tap into various
sources of funding including equity infusion.
"Under its $1.85 billion credit facility, J.C. Penney is permitted to issue up to
$1.75 billion in debt to be secured by a second lien on the asset-backed
revolver collateral and a first lien on other assets. The company owns 429
stores (including 123 located on-ground leases), 12.2 million square feet of
distribution center, regional warehouse, and fulfillment center space, and its
Plano Texas headquarters with 240 acres (or 10.5 million square feet) of
adjacent land that are all currently unencumbered. To the extent that the 1982
indenture governing the 7.125% debentures due 2023 (under which the company has
to maintain a ratio of net tangible assets to senior funded indebtedness of 2.0x
and above) proves to be too restrictive for the company to incur additional
debt, J.C. Penney could potentially use any new debt proceeds to repay the $255
million in outstanding debt under this indenture.
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commentary page. The original article, which may include hyperlinks to companies
and current ratings, can be accessed at www.fitchratings.com. All opinions
expressed are those of Fitch Ratings.
