Feb 12 Retailer J.C. Penney Co Inc
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
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
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
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.