J.C. Penney Shares Tumble On Liquidity Concerns

(RTTNews) - Shares of J.C. Penney Co., Inc. (JCP) tumbled almost 15 percent on Wednesday to their lowest close in nearly 13 years, on fresh liquidity concerns about the beleaguered department store chain.

According to media reports, analysts at Goldman Sachs Group Inc. (GS) said that J.C. Penney's liquidity levels will likely be strained in the third quarter and initiated coverage of the company's stock with an underperform rating. Analysts have warned bond investors to buy protection in the form of credit default swaps in the event J.C. Penney defaulted on its debt.

Goldman Sachs analyst Kristen McDuffy reportedly wrote in a research note that J.C. Penney's liquidity levels in the third quarter would likely be challenged by weak fundamentals, inventory rebuilding and an underperforming home department.

McDuffy added that it was likely that J.C. Penney's management would look to bolster the company's liquidity in order to safeguard against a potentially poor fourth-quarter holiday season.

Plano, Texas-based J.C. Penney's shares have fallen about 50 percent so far in 2013. The company now has a market capitalization of just $2.23 billion, the lowest for a company in the S&P 500 Index.

Media reports last week indicated that J.C. Penney was looking to raise additional funds, primarily by pledging real estate holding, to fund a turnaround after two of its largest stake holders exited their stakes recently. J.C. Penney is said to be advised by Goldman Sachs for raising the cash. But it was unclear how much money the company plans to raise.

In May, J.C. Penney already entered into a new five-year $2.25 billion senior secured term loan credit facility, with the proceeds to be used to finance the cash tender offer for the notes and to fund ongoing working capital requirements and other general corporate purposes.

Goldman Sachs Bank USA was the lead arranger of the term loan credit facility. Barclays, J.P. Morgan Securities LLC, BofA Merrill Lynch and UBS Securities LLC were the other joint arrangers.

J.C. Penney had in early April also drawn $850 million out of its committed revolving credit facility of $1.85 billion to fund its spending.

In August, J.C. Penney reported a wider-than-expected loss of $586 million or $2.66 per share for the second quarter, hurt by hefty charges and lower sales. Net sales decreased 12 percent to $2.66 billion. On a positive note, the retailer noted that the early weeks of the back-to-school shopping period were encouraging, and that it plans to end the year with $1.5 billion in excess liquidity.

JCP closed Wednesday's regular trading session at $10.12, down $1.78 or 14.96 percent on a volume of 100.98 million shares.