Mid-turnaround, J.C. Penney boosts borrowing capacity

Tue Feb 12, 2013 9:45pm EST
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(Reuters) - Retailer J.C. Penney Co Inc (JCP.N: Quote) increased its borrowing capacity under a bank credit facility by $100 million to $1.85 billion and expanded an option to borrow more at a later date, raising concerns among analysts as it works on a turnaround.

"As we enter the second year of our transformation, today's announcement reflects the confidence of our banking group in our long-term strategy and further strengthens our liquidity position as we continue to execute our plan," J.C. Penny Chief Financial Officer Ken Hannah said in a statement on Tuesday.

However, analysts expressed reservations about the move as it would increase the company's borrowing capacity from $1.75 billion to $2.25 billion.

The new arrangements included a $150 million increase in the credit facility's accordion feature to $400 million and a $250 million increase in an additional feature, analysts said. An accordion feature allows a borrower to expand a credit facility at a later date.

"The credit risk profile of (J.C. Penney) continues to escalate as the company potentially increases leverage to bring about a so far disappointing transformation strategy," BMO Capital Markets analyst Wayne Hood said in a client note.

There were no changes in credit terms or covenants, he said.

"These hurried actions are not indicative of a financially healthy company," said Carol Levenson, director of research, at Gimme Credit, an independent research service on corporate bonds.

The department store operator's existing credit agreement is the subject of a default claim by a group of bondholders.

J.C. Penney appeared to have taken extra measures to reassure its bank lenders, signing a "reaffirmation agreement" reiterating the guarantees and the grant of security interest under the credit agreement, Levenson said.   Continued...