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

Wed Feb 13, 2013 3:14am EST

A J.C. Penney department store sign is shown in Oceanside, California, November 5, 2012. REUTERS/Mike Blake/Files

A J.C. Penney department store sign is shown in Oceanside, California, November 5, 2012.

Credit: Reuters/Mike Blake/Files

(Reuters) - Retailer J.C. Penney Co Inc (JCP.N) 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.

The company did not immediately respond to requests for comment.

The arrangement of the credit facility was co-led by J.P. Morgan Securities LLC, Bank of America Merrill Lynch, Barclays Capital and Wells Fargo Capital Finance, J.C. Penny said.

Chief Executive Ron Johnson said last week the company would return to growth in 2013, despite severe sales declines in fiscal 2012.

Penney, which operates 1,100 department stores, began a turnaround a year ago that called for the elimination of most coupons and sales events. Long-term customers, trained for years to seek out discounts, balked at the new pricing strategy and reeled in purchases.

(Reporting by Jessica Wohl in Chicago and Lisa Baertlein in Los Angeles; Editing by Leslie Adler, Andre Grenon and Richard Pullin)

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