J.C. Penney, the department store chain, confirmed today that Goldman Sachs, the investment bank, will provide it with $1.75 billion in financing, after rumors of the loan began to spread last Friday. The loan is a five-year senior secured term loan and may be used to fund company operations as well as to pay off some of its debt. It will be secured by real estate and an interest in some of the company's assets and subsidiaries, according to the AP.
Forbes reported that earlier this month, the store drew $850 million from a $1.85 billion asset-based revolving credit line in order to pay for the replenishment of inventory levels. In May J.C. Penney is expected to complete its overhaul of home departments, a move which necessitated the replenishment of inventory levels.
Outlooks for the Plano, Texas-based company are negative. Also earlier this month, the company fired its CEO, Ron Johnson, after only 17 months on the job. A turnaround plan devised by Johnson, a former Apple executive, had among other things sought to do away with coupons, clearance racks, and sales events in the store while replacing them with designer boutiques. The plan was widely seen as an imitation of the Apple model of providing premium products at premium rates in stores noted for their hip look. After the plan was instituted, sales dipped, forcing the company to backtrack. In the wake of Johnson's departure, the company rehired his predecessor, Mike Ullman.
A report issued earlier this month by Standard & Poor's said that,"In our view, the board's decision to make a leadership change by bringing back the former CEO underscores the severity of the operational issues at the company." The report added that it expected the company to seek additional capital or borrow from the revolving credit line to fund operations due to "less than adequate" liquidity. According to an SEC filing, the company had a cash balance of $930 million as of February 2. A year earlier, their balance was $1.5 billion.
On Thursday, George Soros - the billionaire financier and philanthropist - disclosed that he had taken a 7.9 percent stake in the company. Shares in J.C. Penney rose the following day, closing at $17, up 12 percent. Soros became the fourth largest shareholder in the company with the move.
In morning trading today, J.C. Penney shares went up 26 cents to $17.26
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