JCPenney is weighing the nuclear option as it scrambles to escape its liquidity crunch — and the code word is real estate.
The cash-strapped retailer has tapped Goldman Sachs and JPMorgan to explore a deal that would raise at least $1 billion in cash by the end of this month by pledging the company’s land assets as collateral, The Post has learned.
As first reported last week by The Post, Penney’s most likely path for financing in the near term is to take out a term loan of around $500 million secured by the retailer’s inventory.
Toward that end, Wells Fargo is in talks to lead such a deal, with possible lenders including Gordon Brothers and the asset-based lending arm of private-equity giant TPG, sources said yesterday.
But Penney is also considering a real-estate deal that could be worth more than twice as much, as the struggling department-store chain seeks better terms from lenders while its sales plunge and cash dwindles.
“It’s going to be one or the other,” according to a source close to the situation.
Penney didn’t respond to a request for comment.
Hedge-fund tycoon Bill Ackman, Penney’s largest shareholder, has tapped Blackstone Group and Centerview Partners to help broker an agreement as soon as next week, a source said.
“They want to announce this by the end of the quarter,” according to a source.
In total, insiders said Penney is looking to raise as much as $1.5 billion this year. Last week, sources told The Post that at least three big buyout firms have approached Penney about taking a major stake in the company, among them KKR.
But Penney wants to delay selling equity until its financial condition stabilizes, one insider said.
If Penney goes the real-estate collateral route, in the near term at least, it won’t be spinning off its land holdings into a separate company, as some have speculated, according to a person briefed on the talks.
Rather, the middle-brow retailer is looking to take out a loan backed by its real estate, or possibly a so-called sale-leaseback transaction in which Penney would become a tenant paying rent on more than 400 stores that it currently owns, sources said.
This week, Penney announced it has drawn down $850 million on its $1.875 billion credit line — a facility secured by Penney’s inventory. As such, any additional debt backed by inventory would take the form of riskier, second-lien term loans — with punishing interest rates.
A loan against Penney’s real estate — which is currently unencumbered and also includes the retailer’s headquarters in Plano, Texas — would carry far more attractive terms.
But such a move could also appear more desperate, adding to the company’s long-term financial risk.
“It would seem to me that at all costs they will postpone putting any kind of lien on their real estate,” said Cathy Hershcopf, a partner at law firm Cooley LLP who focuses on corporate restructurings. “They can only do it once.”