J.C. Penney Co. (JCP), the retailer that has borrowed more than $3 billion this year to fund a turnaround, is in talks to potentially raise more cash, said people with knowledge of the matter.
The chain doesn’t have immediate cash needs, and is exploring fundraising amid shareholder pressure to take advantage of cheap financing, said the people, who asked not to be named as the deliberations are private. Goldman Sachs Group Inc. (GS), which arranged a $2.25 billion loan for the retailer this year, is advising J.C. Penney on funding options including borrowing against its real estate, said one of the people.
Discussions with investors are at an early stage, said the people. The cash would give J.C. Penney’s Chief Executive Officer Mike Ullman more time to fix a business that hasn’t turned a quarterly profit since mid-2011. He took back the helm this year after his predecessor’s attempt to appeal to younger and wealthier consumers failed, contributing to the retailer’s worst net loss in more than a quarter-century last year.
“It suggests that the third quarter isn’t going that great,” Paul Swinand, an analyst for Morningstar Inc. (MORN) in Chicago, said in an interview. J.C. Penney should probably take the opportunity to explore raising more money while it can, he said.
The shares sank 1.4 percent to $12.96 at the close in New York, and dropped another 1.2 percent at 5:39 p.m. in extended trading. The stock had declined by more than one-third this year through today’s close. A spokesman for Goldman Sachs declined to comment, while a representative for Plano, Texas-based J.C. Penney didn’t respond to repeated requests for comment.
One option under consideration is for J.C. Penney to borrow against the real estate that it hasn’t already pledged as collateral on other debt, three people said. J.C. Penney values its owned and ground-leased real estate at $4.08 billion, according to a May investor presentation.
About a week after he took over at J.C. Penney in April, Ullman drew $850 million from the retailer’s $1.85 billion revolving credit facility, and the company obtained the $2.25 billion Goldman Sachs loan in May.
J.C. Penney Chief Financial Officer Ken Hannah said last month when the chain reported second-quarter results that the retailer wasn’t assuming it would need to raise more cash this year. It expected to end the year with more than $1.5 billion in liquidity, a forecast that didn’t include additional outside financing.
Hedge funds Glenview Capital Management LLC and Hayman Capital Management LP reported increased stakes in J.C. Penney this month, betting on a revival. The retailer’s sales decline slowed last quarter to 12 percent from 23 percent in the same period a year earlier.
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