J.C. Penney May Borrow Against Real Estate

The retailer is said to be considering splitting its real estate into a new subsidiary that could issue debt.

J.C. Penney Co. is exploring ways to borrow against its real estate holdings to help raise cash, two people with knowledge of the situation said.

The retailer and its financial advisers are considering options including spinning off real estate into a new subsidiary that could issue debt, said one of the people, who asked not to be named because the matter is private. Certain property-backed transactions may avoid triggering problems under existing bond rules, the person said.

Viewed Positively

While the drawdown was more than four times larger than expected, “any capital raise that is not egregiously expensive would be viewed positively for near-term liquidity,” Carla Casella and Paul Simenauer, analysts at JPMorgan Chase & Co. in New York, wrote in a note Monday upgrading J.C. Penney’s debt to neutral.

Swaps Rise

Five-year credit-default swaps on J.C. Penney rose 1 percentage point to 15 percent upfront as of 11:11 a.m. Monday in New York, according to CMA, the data provider owned by McGraw-Hill Cos. that compiles prices quoted by dealers. That means it would cost $1.5 million initially and $500,000 annually to protect $10 million of obligations.

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