Why J.C. Penney Financing Buys Years of Operating Safety

Banking, finance, and taxes

Published: April 29, 2013 2:04 pm

Last Updated: April 28, 2020 10:20 am

Retailer J.C. Penney Co. Inc. (NYSE: JCP) said this morning that it has received a commitment from Goldman Sachs Group Inc. (NYSE: GS) for a five-year $1.75 billion senior secured term loan facility. The term loan will be used for working capital, other corporate purposes, “and to amend, acquire, or satisfy and discharge [Penney’s] outstanding 7.125% Debentures Due 2023.” Penney has not disclosed the terms of the loan nor its interest rate.

The loan is backed by Penney’s real estate and other assets, and is the second major borrowing the company has announced since interim CEO Myron Ullman took over the reins of the company. Penney’s drew $850 million from its $1.85 billion revolving credit facility earlier this month.

Today’s loan virtually guarantees that Penney’s will not default on any of its debt before the company’s next payment on $200 million in bonds due in April 2015. But the real safety play here is the elimination of a covenant the company had to agree to in order to receive the 2023 debt.

According to Penney’s 2012 Form 10-K, the $255 million 7.125% debenture due in 2023 includes a covenant that requires Penney’s to maintain a minimum of 200% of net tangible assets to senior funded indebtedness. The loan from Goldman Sachs doubtless eliminates that covenant, giving Penney more maneuvering space for a much longer time. And buying time is what it’s all about for Penney now.

Shares opened nearly 4% higher this morning before pulling back to a current level of $17.20, up about 1.2%, in a 52-week range of $13.55 to $36.75.

Are You Still Paying With a Debit Card?

The average American spends $17,274 on debit cards a year, and it’s a HUGE mistake. First, debit cards don’t have the same fraud protections as credit cards. Once your money is gone, it’s gone. But more importantly you can actually get something back from this spending every time you swipe.

Issuers are handing out wild bonuses right now. With some you can earn up to 5% back on every purchase. That’s like getting a 5% discount on everything you buy!

Our top pick is kind of hard to imagine. Not only does it pay up to 5% back, it also includes a $200 cash back reward in the first six months, a 0% intro APR, and…. $0 annual fee. It’s quite literally free money for any one that uses a card regularly. Click here to learn more!

Flywheel Publishing has partnered with CardRatings to provide coverage of credit card products. Flywheel Publishing and CardRatings may receive a commission from card issuers.