Moody's Now Calls J.C.Penney Junk (JCP)

Moody’s Investors Service put the heat on the credit ratings of J.C. Penney Co. (NYSE: JCP).  While a cut in the retail sector may not be anything shocking in this climate, this downgrade took the company to “junk” status. The company’s senior unsecured notes were cut by one notch to “Ba1” from “Baa3.”

Moody’s also believes that the operating results are likely to decline further this year and should remain below historic levels in the near-term to medium-term horizons.

Moody’s had already fired a shot across their bow in February with a note that it was going to review the ratings for a possible cut.  Moody’s believes that weaker performance will lead to J.C. Penney’s credit metrics falling.

Noted was the significant softness in sales, but it was also noted that the company is taking steps to reduce inventory to levels which may prevent massive markdowns which were seen in recent months and in 2008.

Moody’s did say that the company is currently seeking commitments for a senior secured credit facility to replace its existing $1.2 billion unsecured pact.  While credit metrics are expected to erode to levels more
appropriate for a “mid-Ba rating,” its liquidity and conservative financial policies did give Moody’s comfort that it can weather the current economic storm.

So far shares do not seem to be bothered.  J.C. Penney stock is up 1.5% at $20.38 on the day.  Its 52-week range if $13.71 to $46.56.

Jon C. Ogg
April 1, 2009