S&P ups J.C. Penney debt, rates loan B+

S&P said it assigned its B+ rating and 2 recovery rating to J.C. Penney Corp. Inc.'s proposed $2 billion senior secured term loan.

Parent J.C. Penney Co. Inc. will guarantee the loan, as will material subsidiaries of borrower J.C. Penney Corp. Inc.

Like the existing loan, the proposed term loan will benefit from first-priority liens on noncurrent assets of the company and the guarantors and second-priority liens on the current assets securing the asset-backed lending (ABL) facility.

The rating is the same as the existing term loan that is being refinanced.

The 2 recovery rating is based upon revised store values in the agency’s assumed default scenario, including recent "dark" valuations of the pledged real estate, and reflects an expectation for substantial (70%-90%, upper half of range) recovery in a default scenario.

S&P also raised the rating on the existing senior unsecured debt to B- from CCC+ and revised the recovery rating to 5 from 6. The 5 recovery rating reflects an expectation for modest recovery in a default scenario (10% to 30%, lower half of range).

The improvement in recovery prospects reflects the agency’s understanding that the collateral package for the term loan excludes "principal properties" as defined in the company's senior note indentures. While the term loan captures the lion's share of the store value under the agency’s analysis (most of the stores are held by unrestricted subsidiaries that are not subject to the indenture restrictions) S&P said it thinks enough value ought to reside in the unpledged stores carved out as principal properties to support a modest recovery for the senior unsecured debt.

The issue-level and recovery ratings on the existing $2.35 billion ABL revolving credit facility are unchanged at BB- and 1.

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