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Moody’s lowers Penney’s credit rating

Associated Press
Macy’s loses appeal on Martha Stewart goods

A New York appeals court is allowing J.C. Penney Co. to continue to sell a new line of home goods designed by Martha Stewart.

The ruling, which came Tuesday, rejects Macy’s request for a preliminary injunction order aiming to block Penney from selling the collection of bedding, cookware and other items labeled JCP Everyday while a larger court battle between the two big retailers over a partnership with the home maven is pending.

Penney started to sell the JCP Everyday-branded goods online and in its stores this month.

Macy’s, based in Cincinnati, had argued that the JCP Everyday products violate its long-standing exclusive contract with Martha Stewart in a broad array of products that include bedding and cookware.

NEW YORK – Moody’s Investors Service is lowering its long-term ratings for J.C. Penney, saying a new term loan won’t fix long-term performance concerns or reduce the amount of cash the retail store operator is expected to go through over the next 12 months.

In April, the department store operator said it would draw $850 million from its $1.85 billion revolving credit line to pay for replenishing inventory.

Following that, the Plano, Texas, company said Goldman Sachs would provide a $1.75 billion senior secured term loan.

Also last month, J.C. Penney fired CEO Ron Johnson after 17 months on the job and rehired his predecessor Mike Ullman. An ambitious turnaround plan by Johnson had backfired and caused sales to plummet.

Last week billionaire financier George Soros disclosed a 7.9 percent stake in the company. The stake makes Soros the fourth-largest shareholder in J.C. Penney.

The top shareholder is activist investor William Ackman’s Pershing Square Capital, with a 17.8 percent stake.

Moody’s said Tuesday that the term loan will help J.C. Penney’s liquidity and lower its reliance on the revolving credit agreement. But the ratings firm said that it will also “greatly weaken J.C. Penney’s capital structure at a time when its earnings are at precarious levels.”

In February the company, one of the anchor retailers at Glenbrook Square in Fort Wayne, reported a bigger-than-expected fiscal fourth-quarter loss on a nearly 30 percent drop in revenue.

Moody’s cut J.C. Penney’s corporate family rating to “Caa1” from “B3”. Moody’s says debt carrying a “Caa” rating “are judged to be of poor standing and are subject to very high credit risk.” Its “SGL-3” speculative grade liquidity rating is unchanged, and its rating outlook is still negative.

A representative of J.C. Penney said via email that “We do not comment on agency ratings.”

J.C. Penney has about 1,100 stores in the U.S. and Puerto Rico. Its stock fell 65 cents, or 3.8 percent, to $16.54 in afternoon trading.

The shares have traded between $13.55 and $36.75 over the last year. For the year to date, the stock is down 12.8 percent.

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