JCPenney 2015 Annual Report Download - page 11

Table of Contents

The credit rating agencies periodically review our capital structure and the quality and stability of our earnings. Any future downgrades to our long-term
credit ratings could result in reduced access to the credit and capital markets and higher interest costs on future financings. The future availability of
financing will depend on a variety of factors such as economic and market conditions, the availability of credit and our credit ratings, as well as the
possibility that lenders could develop a negative perception of us. There is no assurance that we will be able to obtain additional financing on favorable
terms or at all.

Our merchandise is sourced from a wide variety of suppliers, and our business depends on being able to find qualified suppliers and access products in a
timely and efficient manner. Inflationary pressures on commodity prices and other input costs could increase our cost of goods, and an inability to pass such
cost increases on to our customers or a change in our merchandise mix as a result of such cost increases could have an adverse impact on our profitability.
Additionally, the impact of economic conditions on our suppliers cannot be predicted and our suppliers may be unable to access financing or become
insolvent and thus become unable to supply us with products.

Substantially all of our merchandise suppliers and vendors sell to us on open account purchase terms. There is a risk that our key suppliers and vendors could
respond to any actual or apparent decrease in or any concern with our financial results or liquidity by requiring or conditioning their sale of merchandise to
us on more stringent or more costly payment terms, such as by requiring standby letters of credit, earlier or advance payment of invoices, payment upon
delivery or other assurances or credit support or by choosing not to sell merchandise to us on a timely basis or at all. Our arrangements with our suppliers and
vendors may also be impacted by media reports regarding our financial position. Our need for additional liquidity could significantly increase and our
supply of merchandise could be materially disrupted if a significant portion of our key suppliers and vendors took one or more of the actions described
above, which could have a material adverse effect on our sales, customer satisfaction, cash flows, liquidity and financial position.



We are party to a $2.25 billion senior secured term loan credit facility that is secured by mortgages on certain real property of the Company, in addition to
liens on substantially all personal property of the Company, subject to certain exclusions set forth in the credit and security agreement governing the term
loan credit facility and related security documents. The real property subject to mortgages under the term loan credit facility includes our headquarters,
distribution centers and certain of our stores.
The credit and guaranty agreement governing the term loan credit facility contains operating restrictions which may impact our future alternatives by
limiting, without lender consent, our ability to borrow additional funds, execute certain equity financings or enter into dispositions or other liquidity
enhancing or strategic transactions regarding certain of our assets, including our real property. Our ability to obtain additional or other financing or to
dispose of certain assets could also be negatively impacted because a substantial portion of our owned assets have been pledged as collateral for repayment
of our indebtedness under the term loan credit facility.
If an event of default occurs and is continuing, our outstanding obligations under the term loan credit facility could be declared immediately due and
payable or the lenders could foreclose on or exercise other remedies with respect to the assets securing the term loan credit facility, including our
headquarters, distribution centers and certain of our stores. If an event of default occurs, there is no assurance that we would have the cash resources available
to repay such accelerated obligations or refinance such indebtedness on commercially reasonable terms, or at all. The occurrence of any one of these events
could have a material adverse effect on our business, financial condition, results of operations and liquidity.
11