J. C. Penney Company Inc. has skipped a debt payment as the coronavirus continues to expose its already-struggling business.
In a filing with the Securities and Exchange Commission, the Plano, Texas-based retailer has opted not to make a roughly $12 million interest payment, which was due on April 15. It has elected to enter into a 30-day grace period in order to “evaluate certain strategic alternatives, none of which have been implemented at this time.”
If the company fails to pay within that period, it would result in an “event of default,” which would allow the lenders to request the full payment of money owed before it’s due. The 6.375% senior notes are due 2036.
The filing, made on Wednesday, came the same day reports emerged that JCPenney was mulling bankruptcy as an option to rework its finances and save money on imminent debt payments. While it has not yet made a final decision, the chain is also said to be considering negotiations with its creditors to address debt in lieu of bankruptcy court proceedings.
JCPenney, which has reportedly been in talks with its banks over the past few weeks regarding liquidity needs, is also said to be negotiating a debt deal with lenders. A Bloomberg story on Monday reported that it hired the consultancy AlixPartners LLP to help it manage its debt load of about $4 billion.
Also on Monday, Moody’s Investor Service lowered the beleaguered company’s credit rating even deeper in junk status to Caa3 from Caa1. Both classifications represent poor quality and very high credit risk — with Caa3 only one rating away from Ca, which is issued to companies that have the likelihood of being near or are in default but maintain some possibility of recovering principal and interest.
“Although JCPenney liquidity is adequate, the widespread store closures as a result of the coronavirus pandemic and the continued suppression of consumer demand is expected to pressure JCPenney’s EBITDA [earnings before interest, taxes, depreciation and amortization], impede its turnaround strategy and weaken its leverage to unsustainably high levels,” said Moody’s VP Christina Boni.
Two weeks after shuttering its 850 stores in mid-March due to government-mandated closures, JCPenney announced that it would furlough scores of workers and take additional actions to maintain its financial flexibility. It deferred capital spend and tapped $1.25 billion from its $2.35 billion revolving credit line, as well as cut expenditures and paused hiring efforts. The retailer said it had also suspended merit bonuses for the year and was “evaluating other financial options.”
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