May 14, 2013 / 6:10 PM / 6 years ago

RLPC: JC Penney sets indicative pricing on $1.75B TLB

NEW YORK, May 14 (Reuters) - 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 strategist.

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 the company.

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.

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