JCPenney (NYSE:JCP) needs a spectacularly successful holiday selling season or it will probably have to begin selling off stores, an analyst told Business Insider.
The reason? "Under its newly expanded, $2.25 billion credit agreement, outstanding balances have to be repaid by April 4, 2014," Belus Capital Advisors CEO Brian Sozzi wrote in a note to investors last month. "The company will need a historic holiday season and start to 2014 to fund the payment of borrowings with cash on hand."
That's an ugly scenario because no other retailer is currently expecting a blowout holiday, and it's a long shot for struggling Penney's. Even with the money the chain expects to raise by selling stock, it may not have time to get far enough into the black to pay off the debt by April Fool's Day.
In that case, the chain could try to refinance the debt, but that's unlikely given its precarious position that would make interest rates on any new debt painfully high.
A more likely tack: Sell off some real estate. "Real estate is tied to a prior round of financing," Sozzi said. "[The] company did tell me they have 10-20 stores in upper income malls they could sell to mall developers to raise cash. But in retail, these situations take on a mind of their own. Once a domino is pushed down, the rest very often continue to fall in order. A share issuance, and convertible debt offerings, are often a company's last efforts to prevent an ugly end and a trip to the courts (reorganization)."
Sozzi added, "Sounds odd, but the best tell on the future of JCPenney will be to watch the stock price every day, it's now pricing in probable business outcomes for 1Q14."
- See this Business Insider story
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