J.C. Penney Said to Cut Rate on New Term Loan to Refinance

J.C. Penney Co. (JCP), buoyed by rising sales for the first time in three years, is cutting the rate on a $500 million loan it’s seeking to repay debt.

The retailer is proposing to pay 4 percentage points more than the London interbank offered rate, with a 1 percent minimum on the lending benchmark, on the term loan, according to a person with knowledge of the matter. That’s less than the 4.5 percentage point to 4.75 percentage point margin over Libor the company was initially offering, according to the person, who asked not to be identified because they’re not authorized to speak about it.

The spread over the lending benchmark is less than the average of comparable first-lien loans made to retail discretionary companies, according to data compiled by Bloomberg. The debt will be used to refinance an asset-backed revolving credit line by the chain, which has reported $2.5 billion in losses in the last three years.

The Plano, Texas-based company, which has $5.5 billion of total debt, reported a 6.3 percent first-quarter revenue increase on May 16, reversing sales declines that stretched back to 2011.

The company has drawn $650 million from its revolver, which comes due in April 2016, Bloomberg data show. J.C. Penney obtained a commitment from banks for an asset-based revolving credit and term loan facility totaling $2.35 billion, according to a May 19 regulatory filing.

The chain pays interest at 3 percentage points more than the Libor on the revolver, Bloomberg data show. The company is rated Caa1 by Moody’s Investors Service and an equivalent CCC+ by Standard & Poor’s.

To contact the reporter on this story: Sridhar Natarajan in New York at snatarajan15@bloomberg.net

To contact the editors responsible for this story: Shannon D. Harrington at sharrington6@bloomberg.net Faris Khan

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