May 5 (Bloomberg) -- Target Corp., the second-largest U.S. discounter, will sell 47 percent of its $8.2 billion in credit- card loans to JPMorgan Chase & Co. for $3.6 billion to raise cash for stock buybacks and reduce its exposure to consumer defaults.

The transaction may be completed by the end of May, the companies said today. Target said it was examining a possible sale of the loan portfolio in September, two months after activist investor William Ackman revealed a stake in the company and urged steps to boost the stock price.

Selling a stake in the loans will give Target cash to build stores and buy back shares without having to borrow money. A sale will also help protect it as consumer credit declines and the U.S. economy moves closer to a recession. Macy's Inc. and Kohl's Corp. have also sold their receivables to banks in the past three years.

``The agreement was roughly at expectations,'' said David Abella, who helps manage $2.5 billion, including Target shares, for Rochdale Investment Management LLC in New York. ``Investors were concerned about the growing delinquencies and credit exposure in general.''

The two companies will divide profits and losses from the credit-card accounts based on their share of the portfolio, with gains over a certain limit being kept by Target, the Minneapolis-based retailer said in a statement.

Target climbed 48 cents to $53.67 at 6:16 p.m. in trading after the New York Stock Exchange closed. Earlier, the retailer fell 1.3 percent, to $53.19, while New York-based JPMorgan dropped 66 cents, or 1.4 percent, to $48.

March Write-offs

Target said last month it wrote off an annualized 8.1 percent of its credit-card loans in March. The annualized charge-off rate was 6.8 percent in February.

In March the retailer said it was in talks to sell about half its holdings for $4 billion.

New York-based JPMorgan has issued more than 100 million credit cards. Target's credit-card receivables totaled $8.2 billion at the end of March, said spokeswoman Lena Michaud.

JPMorgan will receive a 7 percent discount for the stake. Unless the deal is extended, Target will repay JPMorgan after five years. Target will control the portfolio unless its performance deteriorates, after which JPMorgan would gain some rights to direct the retailer's credit-card team.

``This is more of a secured financing than a sale,'' Michael Taiano, an analyst at Sandler O'Neill & Partners in New York, said in an interview. ``From JPMorgan's perspective, having this relationship gives them a chance to buy the portfolio out at some point.''

Balance Sheet

The retailer, which operates 1,613 stores in 47 states, said all of the loans will remain on its balance sheet. Target will begin reporting two divisions, retail and credit, beginning with the first quarter.

Ackman's Pershing Square Capital Management LP, Target's largest shareholder, is also seeking stock buybacks and a real- estate deal to increase Target shares, which have declined 9.8 percent in the past year.

Target said last November it would buy back as much as $10 billion of its stock.

Fourth-quarter revenue from Target's credit-card portfolio jumped 21 percent to $532 million, outpacing the company's total gain of 0.8 percent, the retailer said in February.

Wal-Mart Stores Inc. is the world's largest retailer.

(Target will hold a conference call tomorrow at 10 a.m. New York time about the purchase, available at (http://www.target.com/investors)

To contact the reporter on this story: Heather Burke in New York at hburke2@bloomberg.net.

Last Updated: May 5, 2008 19:27 EDT