JCPenney has begun tapping its credit line, and it isn’t being shy about it.
The cash-strapped retailer said yesterday it has drawn down $850 million of its $1.85 billion credit line — a bigger-than-expected amount, according to some analysts, as it begins building its inventory for the crucial fall and holiday seasons.
That’s a possible indication that Penney is burning cash quicker than planned, experts said, as former CEO Ron Johnson’s botched makeover left sales in a free fall.
It’s also a signal that Penney was concerned its bank-funded credit line may get tightened in the coming months as liquidity dries up.
“Often such a move is viewed as desperate by the financial markets, and to a certain extent it is,” said Carol Levenson, an analyst at research firm Gimme Credit.
“It’s good that the company has the flexibility to do this, but it also demonstrates that the ‘internally financed transformation’ envisioned by previous management was a pipe dream.”
Indeed, yesterday’s news appeared to rattle execs at Rosenthal & Rosenthal, a factoring firm that finances apparel deliveries by small manufacturers. The New York-based firm yesterday tacked on a 1-percent surcharge to all Penney accounts, according to a document obtained by The Post.
In addition to tapping its line of credit, Penney board member Bill Ackman, its largest shareholder, has been in talks to raise cash by taking out a loan backed by the chain’s real estate, sources close to the company said.
It’s possible Penney could use such a loan to replace what it drew down on the credit facility, which carries an interest rate of 5.25 percent and expires in April 2016.
As first reported by The Post, Penney has meanwhile been approached by at least three large private-equity firms that are interested in making a cash injection into the ailing chain, likely in the $500 million to $1 billion range — in exchange for a stake in the Plano, Texas, company.
Among the firms is KKR, which has been in talks with Penney for more than a month, according to one source briefed on the situation.
Nevertheless, any PE-related deal is not likely until the fall, when Penney hopes to have stabilized its business under new CEO Mike Ullman — who had been its CEO for seven years, until 2011.
Debt-rating agencies Standard & Poor’s and Fitch both reiterated concerns about Penney’s cash situation, which S&P called “less than adequate.”
Penney shares yesterday fell 1.6 percent, to close at $14.39.