According to reports from Reuters and Bloomberg News over the weekend, JCPenney may be looking to raise money possibly through a combination of debt and equity.
Previously JCPenney used its real estate assets in 2012 and again this year to raise cash and back its term loan.
JCPenney stated in the past that its owned and ground-leased real estate is valued at about $4.08 billion and the company could look to borrow against the real estate it hasn’t already set aside as collateral.
In May, Goldman Sach helped JCPenney arrange a new five-year $2.25 billion loan with the proceeds to be used to finance the cash tender offer for the notes and to fund its working capital requirements and other general corporate purposes. So far, the company had used about $850 million from its $1.85 billion revolving credit facility and the $2.25 billion Goldman Sachs loan.
During its second quarter earnings results in August, JCPenney reported that it has $1.53 billion in cash and the unused portion of its credit facility gave it liquidity of $1.85 billion. With its business improving, Ken Hannah, its chief financial officer, said the company should have about $1.5 billion by the end of the year.
Two Largest Stakeholders Sell Off Shares
JCPenney could also raise capital through equity markets, but that may be less likely considering its stock price which is about $12.96 a share. Buckingham Research Group analyst David Glick wrote in a report today that JCPenney could be exploring additional financing in case holiday sales prove more difficult than anticipated.
“It may be prudent to raise additional capital (now vs. waiting until after holiday season) to buffer the firm’s liquidity as they move into the holiday season if consumer trends remain challenging,” Glick said.
Meanwhile Paul Swinand, a retail analyst for Morningstar Inc., said the fact that JCPenney is looking for raise money now may signal weakness in its turnaround strategy. “It suggests that the third quarter isn’t going that great,” said Swinand who agreed that JCPenney should seek to raise money now while it still can.
Reports of the plan to raise more capital come on the heels of two of JCPenney’s largest shareholders selling off their stakes.
Last Friday, in fact, Vornado Realty Trust sold its remaining 6.1% stake following the resignation of Steven Roth, its chairman/ceo, from JCPenney’s board.
And in August, Pershing Square Capital Management, the William Ackman-led hedge fund sold off its entire 18% stake after Ackman, also a former board member, failed to install a new chief executive at JCPenney.