J.C. Penney Company, Inc. (NYSE:JCP) has had its debt cut by ratings agency Moody’s Corporation (NYSE:MCO) according to a statement from the ratings firm. The retailer’s debt is now rated Caa1, which qualifies as Junk under Moody’s ratings regime. The move was not an unexpected one as the problems at J.C. Penney have come to a head lately.
In recent weeks, J.C. Penney Company Inc. (NYSE:JCP) has gone to some length to secured loans for itself to continue its day to day operations. The company managed to secure a loan from Goldman Sachs Group Inc. (NYSE:GS) yesterday that gives the firm access to $1.75 billion over a five year period.
ValueWalk's Raul Panganiban interviews Kirk Du Plessis, Founder and CEO of Option Alpha, and discuss Option Alpha and his general approach to investing. Q1 2021 hedge fund letters, conferences and more The following is a computer generated transcript and may contain some errors. Interview with Option Alpha's Kirk Du Plessis
One of the major problems for J.C. Penney in the first three months of 2013 has been the low rating on its debt. Because of that low rating, the firm needs to secure more cost effective loans from private investors including the Goldman Sachs Group Inc. (NYSE:GS) loan, and the extra $850 million withdrawn on the company’s rolling credit line.
Since the start of 2013, shares in J.C. Penney Company Inc. (NYSE:JCP) have fallen by more than 15%. The company’s shares have risen more than 9% in trading today, Tuesday April 30, however, with stock rising this week on news that legendary investor George Soros had invested in the company to the tune of $300 million.
The new debt rating puts J.P. Penney Company Inc. (NYSE:JCP) debt seven levels deep into the Moody’s Corporation (NYSE:MCO) Junk band. In its’ statement on the Junk rating, Moody’s said that though the Goldman Sachs Group Inc. (NYSE:GS) loan did secure the company’s long term liquidity, the structural problems at the company remained unresolved.
There certainly are real problems with the company’s business. One of the problems highlighted in the rating report was the rate at which the retailer is burning its cash reserves, a big loan won’t help the company if it is drained out of the company in a short space of time.
J.C. Penney Company Inc. (NYSE:JCP) will not reveal its earnings for the first three months of 2011 until May 13. Until then investors in the company will have to grin and bear the of the headwinds, including the downgrade by Moody’s Corporation (NYSE:MCO). On today’s market, the firm’s shares fell by more than 3% to 16.61 at time of writing.
H/T Sue Chang of MarketWatch