NEW YORK – J.C. Penney Co. is exploring ways to borrow against its real estate holdings to help raise cash, two people with knowledge of the situation said.
The retailer and its financial advisers are considering options including spinning off real estate into a new subsidiary that could issue debt, said one of the people, who asked not to be named because the matter is private. Certain property-backed transactions may avoid triggering problems under existing bond rules, the person said.
J.C. Penney is also exploring whether it could sell real estate and lease the property back as another way to free up cash, another person said, adding that other assets, such as inventory, could also be collateralized. It has not decided yet which alternatives to pursue, the person said.
Reinstalled Chief Executive Myron Ullman borrowed $850 million from J.C. Penney's $1.85 billion revolving credit line Monday, a week after replacing Ron Johnson as CEO. Johnson's failed effort to overhaul the retailer consumed cash and led to the company's worst sales in more than two decades. J.C. Penney, which said Monday it's working with advisers to raise capital, is focused on issuing debt, said another person familiar with the matter.
Blackstone Group is helping J.C. Penney raise at least $1 billion, people familiar with the situation have said. The company also has tapped Centerview Partners for advice, two people said Monday.
"We expect the company to pool its real estate into a new subsidiary and issue senior notes with unsecured guarantees to back these notes," Cantor Fitzgerald analysts said in an April 10 note. "We believe that JCP may be able issue up to $1.5 billion in this context."
Revolver borrowings will be used for capital spending and to replenish inventory as the company opens renovated home departments next month, the Plano, Texas-based retailer said Monday in a statement.
"Mike Ullman has his work cut out for him in terms of reassuring suppliers, landlords and employees that J.C. Penney is going to be a going concern," Alex Fuhrman, an analyst for Piper Jaffray Cos. in New York, said in an interview. Assuming it will have access to the rest of the credit facility, "the company has enough liquidity to make it through the end of this year, but next year is really more of the issue."
J.C. Penney rose 5.6 percent to $15.19 at the close in New York. The shares declined 27 percent this year through Monday, compared with an 8.8 percent gain for the Standard & Poor's 500 index. The stock sank 50 percent under Johnson's reign from November 2011 to April 8.
