Penney draws $850 million on credit line to fund changes

NEW YORK (AP) — J.C. Penney Co. says it has drawn $850 million from its $1.85 billion revolving credit line, a clear sign that the flailing department store chain is in a severe cash crunch after a turnaround plan launched early last year resulted in disastrous results. The Plano, Texas-based department store chain says that proceeds will be used to fund working capital requirements and expenditures including stocking up inventory for a newly overhauled home area. The new home area is being rolled out to 500 of its 1,100 stores by next month. The company says the drawing of the funds provides more than its current funding needs to ensure continued liquidity, but it is also looking to explore other alternatives to raise more money. The latest development comes a week after it fired CEO Ron Johnson after 17 months on the job. Johnson spearheaded a costly turnaround plan that included getting rid of most discounts, bringing in hip brands and transforming the stores into collections of mini-boutiques. But shoppers were turned off, resulting in a nearly billion-dollar loss and a 25 percent drop in revenue for the latest fiscal year. Penney rehired Mike Ullman, who had been its CEO for seven years until he was replaced by Johnson. Now, , he’s trying to stem the bleeding of sales, while looking to bolster its cash as Penney is in the middle of building its mini-shops. In early February, Penney had amended its bank credit facility to increase its borrowing capacity to $1.85 billion, but analysts had expected that it wouldn’t tap into the credit line until the middle of the year. “This shows that Penney is burning through cash quicker than anyone expected,” said Brian Sozzi, CEO and chief equities strategist at Belus Capital Advisers. Shares of Penney are down 1 percent, or 17 cents, to $14.45 in premarket trading. The stock has lost more than 65 percent of their value since February 2012 when investors were bullish about Johnson’s plan