Department store J.C. Penney Company, Inc.(NYSE:JCP) rose more than 3 percent on Thursday, couple of days after the company said it was raising its borrowing capacity.
The company had said on Tuesday that it was amending its bank credit facility to raise its borrowing limit to $1.85 billion from $1.5 billion, the move being aimed to give it financial flexibility.
Analysts are hove disturbed by the announcement and said that the company would be constrained in self-funding its turnaround effort this year.
Wane Hood, an analyst at BMO Capital Markets told the Wall Street Journal “The credit risk profile of J.C. Penney continues to escalate as the company potentially increases leverage to bring about a so-far disappointing transformation.”
Earlier this month a group of hedge fund creditors sent the retailer a notice saying that it had violated the terms of their bonds when it pledged inventory as collateral for a $1.5 billion credit line last year.
On Tuesday, the company’s Chief Financial officer Ken Hannah said, ““As we enter the second year of our transformation, [Tuesday's] announcement reflects the confidence of our banking group in our long-term strategy and further strengthens our liquidity position as we continue to execute our plan.”
Former Apple executive Ron Johnson, who has taken over as the chief executive of JC Penney is transforming the company, after its sales showed consistent falls.
Analysts have been downgrading the stock and in January UBS warned that a combination of a “deteriorating earnings outlook” and mounting signs of “cash-flow distress” will require the struggling retailer to make big changes to its turnaround strategy.