J.C. Penny’s Debt Rating Downgraded by S&P

Standard & Poors Corp. lowering its debt ratings on J.C. Penney Corp. Inc. due to continued revenue declines and the increasing likelihood that they’ll have to pursue a distressed debt exchange.

The retailer’s issuer credit rating was lowered to ‘CCC’ from ‘CCC+’.

S&P said, “We see increasing risk that JCP will undertake a distressed exchange. The downgrade reflects our view of the growing risk that JCP will pursue a debt restructuring over the next 12 months because its capital structure appears unsustainable and the trajectory of its progress on management’s business improvement initiatives has not been sufficient to reduce the likelihood of a distressed exchange. Our expectation for an increasingly difficult macroeconomic environment and a still highly competitive department store sector facing secular demand trends, contribute to our assessment. The company’s near-term maturities are manageable as it has about $150 million of senior notes maturing between 2019 and 2020. Still, JCP’s $2.35 billion asset-based lending (ABL) revolver expires in June 2022 and its $1.6 billion term loan matures in June 2023.

“The negative outlook on JCP reflects the growing risk of a distressed debt exchange or restructuring in the next 12 months as industry headwinds, weak same-store sales, and a burdensome debt load contribute to its unsustainable capital structure.

“We could lower our ratings on JCP if the company announces a debt exchange or restructuring or if its operating conditions worsen such that we see a restructuring as increasingly likely in the next six months.

“Before raising our rating on JCP, we would expect the company to demonstrate a significant and sustained improvement in its performance that leads us to view a distressed exchange as less likely.”