In 2013, I called Goldman Sachs a "snake-oil salesman" for underwriting a $ 1 billion J.C. Penney stock offering. Investors got wiped out. Now the bonds, including a 100-year bond, which has collapsed.
J.C.. Penney, which just took another step towards a bankruptcy filing and probably liquidation of the company, can be summarized this way:
- 860 stores, down from 1,100 stores in 2011;
- 95,000 employees;
- $ 4 trillion in annual sales down from $ 17 billion in 2011;  $ 5 trillion in accumulated net unused since 2011.
- $ 12 trillion in annual sales down from $ 17 billion in 2011; 19659008] Sources have the duty of Reuters that the company has hired restructuring advisors. The implication of hiring restructuring advisors is always this: If the company does not credit its agreement on a debt restructuring that will likely cost them, it will file for bankruptcy. It is this bankruptcy threat hanging over creditors that might motivate them to accept losses through negotiations rather than having a bankruptcy court decide their fate.
But even after a debt restructuring, a zombie like J.C. Penney is likely to fail a year or two later. Retailers are notoriously difficult to restructure. Most of them end up getting liquidated. When a storied brand like J.C. Penney fails, it's not because of one slip-up, but because of years or even decades of mismanagement and failure to adapt to a changing environment ̵
Upon the news today, J.C. Penney's shares [JCP] plunged 17%, from almost worthless to less, now at $ 0.90.
What is surprising is that this is not happening. Department stores have been totally crushed by e-commerce. Chains, including the biggies Sears and Kmart, and Bon Stores, which didn't make the transition, have already been dismembered as part of the brick-and-mortar meltdown.
But I'm in awe of how long zombie companies like JC Penney keeps getting fed up with investors believing in Wall Street hype and then getting ripped off. [Here] is here the J.C. Penney example of how Wall Street entities, in this case Goldman Sachs, have conspired with the company to rip off investors. Back in 2013, when I was still fairly new with my financial website and was still using angry but technically correct terms that I could not use today in my child and gentler less, I wrote an article – "J.C. Penney And Goldman: Reading, Scams, And Rip Offs – That Started Out This Way:
Why would anyone buy this crap? No, not the clothes in J.C. Penney's stores – which is practically no one buying – but the shares just sold.
Tsk, tsk, tsk, wash out your mouth with soap, Wolf… And then this:
The hired Goldman Sachs as underwriter – snake-oil salesman would be a more appropriate term – and offered to sell 84 million shares at $ 9.65 per share and granted Goldman a 30-day option to buy up to 12.6 million more shares, for a total of 96.6 million shares. The deal would raise up to $ 932 million.
The stock offering was planned in all secrecy. And the day before the announcement of the share sale, and in order to pump up the share price ahead of it, CEO Myron E. Ullman III, fully involved in the share sale the next day, said that he didn't foresee a situation this year where “we'd need to raise liquidity.”
Lies, lies, lies.
Yup, in September 2013, J.C. Penney, with the help of Goldman Sachs, who got richly paid for this, was able to extract by nearly $ 1 billion from new investors via a share offering at $ 9.65 a share. This money from new investors bailed out investors and kept the zombie alive, allowed it to refinance its maturity in subsequent years, and allowed it to remain the above-mentioned $ 5 trillion.
But investors who bought those shares during the misbegotten stock offering in September 2013 did not have to wait all that long before they got cleaned out. Their investment is down 91%.
Now we're getting closer to the end. Another share sale is out of the question. Refinancing the debt that is coming is probably also out of the question. Everyone knows: It's now the creditors' turn to money, either in bankruptcy court or outside.
Moody's rates J.C. Penney Caa3, just a couple of notches above default (my plain-English cheat-sheet or corporate credit rating at S&P, Moody's, and Fitch). News of debt restructuring is likely to cause Moody's to perk up its ears. A debt restructuring, even outside of a bankruptcy court, is generally considered an event of default.
J.C. Penney has been having discussions with restructuring specialists – lawyers and investment banks – for weeks, "some of the sources" customs Reuters. One of the sources said that the restructuring discussions are at an early stage. The goal is to find ways to restructure debt and raise new money to bail out old investors. This would keep the zombie alive a little longer. Creditors will be motivated by the threat of a bankruptcy filing hanging over their heads, and they get to choose
In terms of the bonds that form part of J.C. Penney's $ 4 trillion in long-term debt, there is a slew of stuff out there, some wild stuff too. For example on the wild side, in 1997, J.C. Penney was able to sell $ 500 million or 100-year unsecured bonds, paying and coupon interest of 7.625%. These things have collapsed, now trading at 22.5 cents on the dollar, according to Finra data. This means that there is a near-zero chance of the company ever making it 2021. The yield is 33% at today's price, and if you buy this price, and if the company manages to make interest payments for one More year, those bonds would be a great deal. If not, well…
Then the company has five-year notes of $ 400 million, issued in 2014. Of that, only $ 50 million are still outstanding, and they're coming due on October 1, 2019. Investors are certain the company will be able to make it go and pay off the note with cash it has on hand. It's currently trading at 99 cents on the dollar:
In 2007, J.C. Penney sold $ 700 million in 30-year unsecured bonds, with a coupon of 6.375%. Of those bonds, $ 388 million are still outstanding. They have collapsed, and now trade at 21 cents on the dollar, which gives them a yield of 31%. Investors who buy today are calculating to receive just one year of interest payments, and then après moi le déluge:
In 2010, the company sold $ 400 million of unsecured 10- year notes with a coupon of 5.65%. Of that, $ 110 million are still outstanding, which are due in June next year. These bonds have gone through some wild gyrations late last year and this year, as investors were weighing the chances that the company would make it through June 2020. They're currently trading at around 93 cents on the dollar, indicating that investors are pretty sure , but not certain, those bonds will be ready at face value on the maturity date, but a month ago, they were less secure, and bonds traded as low as 80 cents on the dollar:
Stock investors have been wiped out, and the remaining $ 280 million in market value will be mopped up too. Bond investors are giving the company a very limited life span – if all goes well, a couple of years maybe. So that might be 2020 or 2021 in a best-case scenario, during which time the company will continue to eat up investor money.
But this was clear in 2013, when I wrote the article, and we're now six years further into it, and it's still moving down the same path toward the inevitable, and it has gotten closer to the inevitable, within smelling distance really, and investors have lost a lot of money and yet they are still thinking about feeding the zombie with new money to keep limping along a little while longer.
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