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JC Penney borrows $850 million after failed overhaul

Posted By GABRIELLE LEVY, UPI.com   |   April 16, 2013 at 10:26 AM   |   Comments

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April 16 (UPI) -- JC Penney's new CEO opened an $850 million revolving credit to help grow its inventory. The loan is larger -- and comes sooner -- than expected in the wake of a failed overhaul led to his predecessor's departure.

“People are looking for signs of how much of an urgent situation this is, so tapping something to that size puts it in the category of ‘fairly urgent,' Michael Binetti, an analyst for UBS AG, told Bloomberg Businessweek.

JC Penney posted a $10 million loss last year, compared to generating $820 million in 2011.

CEO Myron Ullman drew the credit from the retail chain's revolving $1.85 billion credit line, a week after he took over the top job from Ron Johnson, in the latest attempt to stabilize company finances ahead of the opening of the newly renovated home department next month.

JC Penney said in a statement it was working with advisers to raise capital, and a source told Bloomberg it was focusing on selling its debt.

The retailer's stock has fallen 27 percent this year, even as the Standard & Poor's 500 index has gained 8.8 percent. The stock dropped 50 percent with Johnson at the helm from November 2011, when he took over from Ullman, to April 8.

Ullman “certainly takes a much more conservative approach to our spending and our cash reserves,” Daphne Avila, a spokeswoman for J.C. Penney, said. “He prefers to operate with a much larger cushion.”

“Using that revolver for working capital requirements is what it’s intended to be,” said Chief Financial Officer Kenneth Hannah in a March 13 presentation. “Trying to use it as a substitute for the fact that you’re not connecting with your customer is something that the company has to avoid.”

JC Penney is looking to several financial groups to raise at least $1 billion. The chain has 1,100 stores nationwide.

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