Fitch Ratings has given the $1.75 billion five-year senior secured term loan to J.C. Penney from Goldman Sachs a BB- rating with a negative outlook. The loan is in part secured by first lien mortgages on owned and ground-leased stores, the company’s headquarters and nine distribution centers it owns.
However, as Fitch noted, the closing is contingent upon the successful tendering or defeasance of $225 million in debt due in 2023; that has to be done because of the restrictive covenants on the debt.
The borrowing is in the wake of
Fitch said Penney has a projected cash burn this year of between $1.7 billion and $1.9 billion. After this year, the retailer will have to generate between $750 million to $900 million in EBITDA to fund ongoing capital expenditures and cash interest expense. That means sales will have to 8% above where they were in 2012.
“The speed and the ability of the company to stabilize sales and return to positive comparable store sales growth will determine additional funding requirements in 2014 and beyond,” the rating agency said, adding it expects Penney’s liquidity between this new term loan and a $1.85 billion credit facility to be adequate through next year.
