Plano, TX—Only hours after its CEO Myron “Mike” Ullman told analysts he didn’t see “conditions for the rest of the year that would warrant raising liquidity,” JCPenney said it plans to sell 84 million shares of its common stock in an effort to increase its cash reserves.
“The company intends to use the net proceeds from the offering for general corporate purposes,” read JCPenney’s statement released after market hours on Thursday. The retailer also said it’s allowing underwriters a 30-day option to purchase an additional 12.6 million shares.
Based on Thursday’s closing price of $10.42, JCPenney would raise proceeds of more than $1 billion before expenses.
Goldman Sachs, which previously arranged a $2.25 billion loan in May, is the sole underwriter of the offering. That’s ironic, some analysts pointed out today, since earlier this week Goldman issued a “scathing research report” telling investors that a bankruptcy is a very real possibility and suggested that clients buy insurance protection.
Eases Concerns of Vendors, Employees
“It’s an opportunity to do things now,” Kristin Hays, a JCPenney spokesperson said of the share sale. The fundraising “has the dual benefit of easing the concerns of our vendors and our employees. It also shores up the balance sheet ahead of what could be a choppy holiday season for retailers.”
According to reports, cost for insurance against a JCPenney default has reached near record-high levels in the last week. Standard & Poor’s, the rating service, rates JCPenney as “CCC” due to its debt load. The company has about $2.6 billion of outstanding bonds.
The cost to insure $10 million of JCPenney bonds against a default for five years now requires an upfront payment of about $2.2 million plus quarterly payments of about $300,000 for the duration of the contract. The contract’s pricing reflects a default probability of nearly 65%.
In other news, JCPenney revealed in a regulatory filing that Mark Sweeney, senior vice president/controller, had left the company. Dennis Miler, senior vice president of finance, will serve as interim principal accounting officer.