| NEW YORK
NEW YORK May 14 Embattled retailer J.C. Penney
has set indicative pricing on its new $1.75 billion term
loan B, sources told Thomson Reuters LPC.
The loan is expected to price at LIB+575, with a 1 percent
Libor floor, and a 99 issue price. The loan will be
covenant-lite, and will include call protection of 102 and 101
in the first and second years, respectively.
The new term loan will be used to refinance the company's
outstanding 7.125 percent notes due 2023, to fund working
capital, and back general corporate purposes.
Lead arranger Goldman Sachs began officially marketing the
five-year loan today, via a bank meeting. The loan was
approximately three times oversubscribed ahead of today's
launch, sources said.
"It is not often that we see (a triple-C rated issuer)
oversubscribed, but in this case, sitting on top of the capital
structure, you should be in a safer spot," said one credit
The loan will be structurally senior to $2.6 billion of
unsecured bonds and $3.9 billion of equity value in the
company's capital structure, according to a lender presentation.
The new loan will be guaranteed by Penney subsidiaries, and
secured by substantially all assets of the company, including
real estate. More than $4 billion of hard collateral will back
the loan, including an appraised value of over $3.3 billion in
real estate collateral.
The loan will have a second-lien claim to collateral under
the existing $1.85 billion, asset-based lending revolving credit
facility led by JP Morgan.
Corporate family ratings on JC Penney are Caa1/CCC+/B-.
Facility ratings on the term loan B are NA/B/BB-.
The loan will help to stave off a near-term liquidity crunch
stemming from operational declines after a failed turnaround at
In mid-April, JC Penney was forced to draw down $850 million
from its $1.85 billion asset-based revolving credit facility to
help buy inventory and revamp its business strategy. S&P calls
the company's liquidity "less than adequate," and estimates a
free operating cash flow burn of about $1.5 billion over the
next 12 months.
Lender commitments are due May 21, and allocation, closing
and funding is expected on May 22.
Penney's first quarter earnings announcement is set for May 16
after market close.