J.C. Penny announced on Monday that the company will be borrowing $850 million from its' $1.85 billion revolving credit facility.
The move was put into action after the department store outlet decided it wanted to revamp its' business strategy, which includes revamping the home goods apartment, according to Reuters.
The money will be used on capital needs and capital expenditures, which includes the buying of inventory. They expect to complete the turnaround by next month, although some stores may be sold off to help finance the move Reuters reported.
Fitch Ratings said the move happened sooner than expected and called the borrowing of millions a "stop-gap measure," according to Reuters. The company also remains concerned over the ability of J.C. Penny to secure the roughly "$1 billion it will need in permanent financing this year."
"We expect J.C. Penney will need to tap into various sources of funding including equity infusion," the agency told Reuters Monday. A week earlier, J.C. Penny fired its' CEO Ron Johnson, who was brought in to revitalize the mega-retailer.
One analyst, Carol Levenson of Gimme Credit, said the move to "draw on its' credit line" shows there is "no potential equity investor...with a checkbook."
"It's good that the company has the flexibility to do this," Levenson said, "but it also demonstrates that the 'internally financed transformation' envisioned by previous management was a pipe dream."
Standard & Poors announced the move had no immediate effect on the rating of the company.
"Our assessment of the company's liquidity remains 'less than adequate," the agency said. "If the company were to increase its total secured debt beyond the revolver, this could have a negative effect on the issue-level rating on the unsecured debt."
The price for purchasing credit protection for buyers has gone up.
"The cost of buying credit protection in J.C. Penney went up dramatically on Monday, with buyers of five-year J.C. Penney credit default swaps paying $1.53 million plus $500,000 to insure $10 million in debt, up from Friday's cost of $1.38 million," according to Reuters.
The company's shares also fell 23 cents and closed at $14.39 on the NYSE.
Read the financial details here.
