J.C. Penney Creates New Ways to Make Money after its Branding Fail
Once a premier American department store, J.C. Penney faces numerous challenges when attempting to compete with so many other clothing stores that are becoming increasing popular. While J.C. Penney used to dominate in the fashion department, with the rise of stores such as Forever 21 and H&M, J.C. Penney is seeking other ways to raise money.
J.C. Penney lost a lot of money at the beginning of 2012 when it announced a drastic “no sales” policy and attempted to rebrand itself as “jcp.” The rebranding attempt was an effort to revive the store, and make it more relevant amongst its competitors. Although backed by good intentions, the rebranding resulted in decreased revenue.
In an effort to “un-do” the failed re-branding, J.C. Penney, backed by hedge-fund manager William Ackerman, is set to raise billions of dollars through its revised credit line. Under changes to the company’s primary credit line, its banks affirmed that J.C. Penney can sell convertible preferred stock without triggering repayment provisions under the lending agreement, according to a February 12 regulatory filing. The revisions also permit the department store chain to obtain as much as $1.75 billion in new loans by pledging real estate and other fixed assets as collateral.
J.C. Penney has lost almost half its stock-market value in the past year, making it the fourth-worst performance among companies in the U.S. benchmark Standard and Poor’s 500 Index . The decline has weighed down the returns of Pershing Square’s funds, which had about 9 percent of their capital invested in J.C. Penney.
J.C. Penney’s cash and equivalents fell to $525 million at the end of the third quarter from $888 million three months earlier. J.C. Penney ended the 2012 fiscal year with less than $700 million in cash.
A copy of the amended borrowing agreement filed with the U.S. Securities and Exchange Commission on February 12 shows new terms that, among other things, give J.C. Penney leeway to raise money through a stock sale underwritten by a financial institution. The amended filing affirms that this type of equity offering will not trigger change of control provisions in the credit line that authorizes lenders to force repayment of any outstanding borrowings if J.C. Penney is acquired.
Despite receiving a default notice from the company’s bondholders, a J.C. Penney spokesperson stated that the February 12 announcement of the credit agreement revisions is independent and unrelated to the default notice received. While there is no correlation between the default notice and credit agreement revisions, the credit agreement revisions are strongly related to re-vamping the company after its collapse from the rebranding fail.