J.C. Penney tries to squeeze lenders for billions
The retailer, already heavily in debt, is scrambling for more cash and may borrow against its real estate.
Penney, which doesn't have an immediate need for cash, is looking to bolster its balance sheet as CEO Myron "Mike" Ullman, who came back to run the company this year, looks to breathe new life into the venerable 110-year-old retailer.
The scramble for more cash came as a surprise to Wall Street. As Bloomberg noted, CFO Ken Hannah told investors during the latest earnings conference call that the company would end the year with more than $1.5 billion in liquidity. He didn't mention any need for additional financing.
However, the additional cash would give Ullman something that he needs: time. Penney needs to act now before its deteriorating business conditions make it too big of a risk for financial institutions to shoulder. It was a strategy that Ford (F) CEO Alan Mullaly employed to great success a the height of the Great Recession and enabled the automaker to avoid the government bailouts that went to General Motors (GM) and Chrysler.
One option that J.C. Penney is considering is borrowing against the real estate that it hasn't already pledged as collateral, according to Bloomberg. The company values its owned and leased real estate at $4.08 billion. Given the rebound in the real estate market, Penney ought not have difficulty finding investors for its holdings.
Though many pundits have written J.C. Penney off as a hopeless basket case, the retailer has some powerful friends in its corner. First, Goldman Sachs (GS) is reportedly helping arrange its latest financing efforts, while hedge funds Glenview Capital Management and Hayman Capital Management have recently increased their holdings in Penney.
Things are starting to look less bad for Penney, which isn't saying much. Sales in the last quarter fell 12%, an improvement from the 23% decline in the year-earlier period. Wall Street analysts have a 52-week price target on the stock of $15.57, a gain of more than 20% this year.
A J.C. Penney comeback isn't far-fetched, though it may be years away. Best Buy (BBY), another retailer that has seen its share of tough times in recent years, has been on a roll this year. Its shares have surged more than 223% as investors became more confident in the turnaround being engineered by CEO Hubert Joly.
Whether lightning will also strike for J.C. Penney is tough to say. Things, though, are starting to move in the right direction.
Jonathan Berr does not own shares of the listed stocks. Follow hm on Twitter@jdberr or at Berr's World.
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