Can JC Penney Avoid Bankruptcy?

Struggling retailer J.C. Penney Co. Inc. (NYSE: JCP) has reportedly added turnaround specialists Alix Partners to the growing list of experts advising the company. Alix Partners specializes in helping companies rearrange their finances to meet current and near-current obligations.

Few companies need that help more than J.C. Penney does. According to CNBC, J.C. Penney is scheduled to make a debt repayment of $12 million today, with a $105 million bond repayment coming due in June. Annual interest expenses total around $300 million, and debt maturing in 2023 totals more than $2 billion.

The COVID-19 pandemic may force the company into bankruptcy. All the company’s 846 brick-and-mortar stores are closed and the company has furloughed some 90,000 employees. To its credit, J.C. Penney has paid 100% of employee-paid premiums for workers enrolled in its benefits programs.

However, the handwriting is on the wall. On Tuesday, Moody’s Investors Service downgraded the company’s credit rating from Caa1 to Caa3, indicating that the ratings agency believes that J.C. Penney will soon default on its debt and that there is little hope for recovery. Moody’s also lowered its rating outlook for J.C. Penney from stable to negative.

Christina Boni, Moody’s vice president, said:

Although J.C Penney liquidity is adequate, the widespread store closures as a result of the coronavirus pandemic and the continued suppression of consumer demand is expected to pressure J.C. Penney’s EBITDA, impede its turnaround strategy and weaken its leverage to unsustainably high levels.

In early March, J.C. Penney disclosed that it had been in discussions with a lender regarding “potential strategic transactions to enhance the Company’s capital structure.” The discussions ended without a transaction.

Investors appear to believe the end is in sight. In Wednesday’s premarket session, J.C. Penney stock traded down about 12% to $0.28, in a 52-week range of $0.26 to $1.37.

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