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JCPenney’s To Take Nearly $1 Billion For Operating Capital As Retailer Tries To Recover

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With its new CEO, Myron “Mike” Ullman, barely a month on the job, J.C. Penney announced plans to use at least $850 million of its revolving credit line of $1.85 billion for operating capital.

But that’s just for openers. Penney will also try to raise an additional $1 billion with the assistance of Blackstone Group LP.

Massive funding is required by JC Penney to restock inventory and to complete the remodeling of more than 500 of its stores, a project begun by the recently departed CEO, Ron Johnson.

Johnson left Penney after his pricing strategy, part of an ambitious turnaround plan, failed to attract new customers and old customers went shopping elsewhere. As a result, Penney’s net loss for 2012 was a whopping $985 million.

Penney CFO Ken Hannah anticipated the need for an infusion of cash.

‘”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,” he said.

“As we near completion of the home department  transformation in over 500 stores, we have been undertaking and will continue to experience significant inventory build and increase in capital expenditures.”

Even with $850 million in credit at its disposal, Penney will likely need much more cash to climb out of its deep financial pit. And so bond analysts are not optimistic about Penney’s short-term future and claim that the money now available would probably only be adequate for a year.

Apparently, Penney is aware of its long term cash needs and has floated the possibility of selling a minority stake in the firm. Among the potential buyers are private equity companies.

Meanwhile, Standard & Poor’s downgraded Penney’s debt rating, to a level suggesting “vulnerability to nonpayment.”

 

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