J.C. Penney borrows $850 million to boost inventory

Mon Apr 15, 2013 4:36pm EDT
 
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By Martinne Geller

(Reuters) - J.C. Penney Co Inc (JCP.N: Quote) has borrowed $850 million from its $1.85 billion revolving credit facility to help buy inventory as the department store operator revamps its business strategy after a failed turnaround.

The company said on Monday it will use the proceeds to fund its working capital needs and capital expenditures, including buying inventory as it overhauls its home goods department, an effort it expects to complete next month.

The borrowing, which analysts said was bigger and sooner than expected, was seen as merely a "stop-gap measure" by Fitch Ratings, who said it remains concerned about Penney's ability to secure the roughly $1 billion it will need in permanent financing this year.

"We expect J.C. Penney will need to tap into various sources of funding including equity infusion," the agency said on Monday, a week after Penney ousted Chief Executive Ron Johnson, who was brought in by shareholder and board member William Ackman to revitalize the lackluster retailer.

But the fact that the retailer had to draw on its credit line shows that so far, there is "no potential equity investor ready with a checkbook," said Gimme Credit analyst Carol Levenson.

"It's good that the company has the flexibility to do this," Levenson said, "but it also demonstrates that the 'internally financed transformation' envisioned by previous management was a pipe dream."

Standard & Poor's Ratings Services said the move had no immediate effect on the company's ratings or outlook.

"Our assessment of the company's liquidity remains 'less than adequate,'" the agency said. "If the company were to increase its total secured debt beyond the revolver, this could have a negative effect on the issue-level rating on the unsecured debt."   Continued...