For What JCpenney Is Running Out Of Time ?

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For What JCpenney Is Running Out Of Time ?

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What happened?

USA-based iconic retailer JCPenney (NYSE: JCP)is running out of time. JCPenney is a retail chain with more than 800 stores present in USA. They missed their first debt payment of $12 million due to bond holders, last month. JCPenney has missed their second debt payment of $17million came on a credit line this past Thursday. Expiry of the grace period is Thursday and Friday of this week.

Last week two national retailers,Neiman Marcus and J Crew, both filed for bankruptcy protection. On Sunday, the holding company Stage Stores (SSI) — which operates about 800 smaller department stores under the brand names Bealls, Goody’s, Palais Royal, Peebles, Stage and Gordmans — also filed for bankruptcy. JCPenney’s first missed debt payment  , $12 million due to bond holders, came on April 15.

So what?

The company is on verge of filing for bankruptcy. The company didn’t comment whether they are going to file for bankruptcy or not but it is expected that they are going to do so is coming week. JCPenney’s future is totally in the hands of lenders.  As of February 1, Company had $3.6 billion in long term debt in their books.  JCPenney’s first missed debt payment, $12 million due to bond holders, came on April 15. The second missed payment, for $17 million, came on a credit line this past Thursday. For the two missed payments, the grace periods expire on Thursday and Friday (14th & 15th May) of this week.

“JCPenney made the strategic decision to not make an interest payment due on May 7 and take advantage of the grace period to continue on going constructive discussions with lenders and maximize financial flexibility,” the company said last week.

“JCPenney has been engaged in discussions with its lenders since mid-2019 to evaluate options to strengthen its balance sheet, a process that has become even more important as our stores have also closed due to the pandemic.”

The company’s stock fell nearly by 8% on Monday (11 May 2020). The price of the share went down to 16 cents per share. Its stock is down 86% so far this year. Even if the company doesn’t file for bankruptcy, it is at risk that companies share may not be traded at New York Stock Exchange.

Other national retailers like Neiman Marcus and J.Crew both filed for bankruptcy protection last week.

Paradoxically, more store reopenings could actually increase the chance of a bankruptcy filing. When businesses file for bankruptcy and intend to stay in business, they need to take out additional loans to fund those operations during the reorganization. But those loans are often paid off with the proceeds of store closing sales.  Without them, reorganizing in bankruptcy becomes more difficult.

“The company had $3.6 billion in long-term debt on its books as of February 1. JCPenney’s  shares were down nearly 8% Monday, falling to less than 16 cents a share. Its stock is down 86% so far this year — falling so low that it’s at risk of no longer being traded on the New York Stock Exchange later this year, even if it doesn’t file for bankruptcy.

Now what?

Analysts have so far raised concerns about protracted store closures as well as a decline in foot traffic even when the retailer’s locations reopen post-COVID-19. Two weeks after shuttering its 850 stores in mid-March, JCPenney announced that it would furlough scores of workers and take additional actions to maintain flexibility, including deferring capital spend, cutting expenditures and pausing hiring efforts.

For several years, JCPenney has struggled with a declining sales, numerous leadership changes and increased digital competition. As a result, investors have largely lost faith in the retailer, pushing its stock below $1 and putting it at risk of being delisted from the New York Stock Exchange.

JCPenney and other retailers have started to reopen as lockdown orders are lifted in the states. Out of 850 stores present across nation only 16 have been reopened. More stores are expected to open this week. Other than these 15 stores are allowed to curb side pickup orders. Paradoxically, more store reopening’s could actually increase the chance of a bankruptcy filing. When businesses file for bankruptcy and intend to stay in business, they need to take out additional loans to fund those operations during the reorganization. But those loans are often paid off with the proceeds of store closing sales. Without them, reorganizing in bankruptcy becomes more difficult.

JCPenney is planning to shut down additional stores for years. JCPenney had 1000 stores three years ago now their store count came down to 850 stores. With 90,000 employees it is biggest retailer in the country to file for bankruptcy.

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