J.C. Penney reportedly preparing for debt talks

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J.C. Penney reportedly preparing for debt talks

By Marianne Wilson - 09/20/2019
Timing is crucial in retail.

J.C. Penney is reported to be prepping for talks with its creditors on ways to reduce its debt load as it looks to buy itself some time heading into the holiday season, reported CNBC. According to CNBC, Bloomberg reported, citing people familiar with the matter, that Penney’s advisors and some of its bondholders are close to signing nondisclosure agreements. Penney has approximately $4 billion in debt coming due over the next few years.

The report comes days after Fitch Ratings downgraded Penney’s debt into deeper into junk territory.

“The downgrade reflects continued market share losses and declining EBITDA, with lack of visibility for a material turnaround although there are no near-term liquidity concerns,” Fitch stated.

Fitch also noted that unlike many retailers, Penney has a rich asset base inclusive of owned real estate.

“The company may also be able to monetize below market rate leases and unlock value from private brands, which represent 46% of revenue,” it stated. “These assets could be utilized by J.C. Penney to refinance or make changes to its capital structure.”

The beleaguered department store chain has been working to turnaround its ailing business under the leadership of Jill Soltau, who took the reins as CEO in October 2018. In August, it announced a partnership with online consignment retailer thredUp to offer a selection of secondhand women’s clothing and handbags in dedicated departments in 30 Penney stores. Earlier this month, Penney announced it would open in-store outdoor shops selling men’s apparel and other excursion gear in 100 of its stores.

Industry analysts have, for the most part, applauded Soltau’s efforts, which have focused largely on apparel and soft home goods and putting in place a new senior management team. But, as more than one has noted, that may not be enough to save the retailer.

“Penney have very little breathing space,” Neil Saunders, managing director, GlobalData Retail, commented in August. “It has enough liquidity to function for now, but it also has a big debt pile and a broken business that needs investment to fix,” “Those things are uncomfortable bedfellows. The next six months will be critical.”