JCPenney just got slapped by Goldman Sachs’s other hand.
Shares of the struggling retailer plunged to their lowest levels in more than 12 years after Goldman issued a downbeat report on Penney’s finances — despite the fact that the investment bank recently arranged a massive debt package for the chain.
“We expect 3Q and 4Q to be difficult,” Goldman said in a research note Wednesday, forecasting weaker-than-expected sales for the crucial fall and holiday quarters.
The note also mentioned the B-word: bankruptcy.
The lengthy report raised eyebrows on Wall Street as Goldman, which arranged a $2.25 billion financing package this spring backed by Penney’s real estate, laid out potential scenarios for creditors in the event of a bankruptcy filing.
“Although we believe handicapping a bankruptcy filing for JCP is premature, we do believe that understanding likely recovery values in the event of a bankruptcy is an important exercise,” the report said.
In response to questions, Goldman officials emphasized that the bank’s research arm is a separate operation from the investment-banking unit that arranged Penney’s financing deal.
Penney officials didn’t respond to a request for comment.
Meanwhile, also on Wednesday, Penney CEO Mike Ullman was in New York speaking to investors, indicating that he saw “encouraging” sales trends in the business, and said that Penney made “good progress” in the back-to-school season, according to a report by Sterne Agee, which hosted the private pow-wow.
That wasn’t enough to stem the panic spurred by the Goldman report, which sent Penney shares tumbling as low as $9.93 — their lowest level in nearly 13 years — before closing at $10.12, down 15 percent.
The grisly session capped a weeklong stock decline that has shaved more than 25 percent. Year to date, Penny is down 49 percent.
Goldman, which initiated coverage of Penney’s bonds with an “underperform” rating, estimated that unsecured creditors would take a nasty haircut should the Plano, Texas, chain file for Chapter 11 — saying they would recover only 47 percent to 65 percent of their investment.
The hit could be more severe if Penney is forced to raise additional funds to shore up liquidity, the bank warned.
Some observers took the report as evidence of the genuine independence of Goldman’s research and banking units. But it also spurred conspiracy theories that Goldman is looking to take control of Penney with the debt it owns by forcing the company under.
Also on Wednesday, a New York judge said he will soon rule on Penney’s dispute with Macy’s over its controversial home-goods contract with Martha Stewart.
The judge called a hearing in response to an exclusive report in The Post that Penney is ditching the domestic diva’s line despite the fact that the judge hasn’t yet ruled.
Financial blog Zero Hedge accused Goldman of launching a “vicious attack on the same company that paid it millions of dollars in underwriting fees,” alleging that Goldman played a similar, predatory role in the bankruptcies of Movie Gallery and Lehman Brothers.