JCPenney 2015 Annual Report Download - page 12

Table of Contents
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We are party to a $2.35 billion senior secured asset-based revolving credit facility. Our borrowing capacity under our revolving credit facility varies
according to the Company’s inventory levels, accounts receivable and credit card receivables, net of certain reserves. In the event of any material decrease in
the amount of or appraised value of these assets, our borrowing capacity would similarly decrease, which could adversely impact our business and liquidity.
Our revolving credit facility contains customary affirmative and negative covenants and certain restrictions on operations become applicable if our
availability falls below certain thresholds. These covenants could impose significant operating and financial limitations and restrictions on us, including
restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.
Our obligations under the revolving credit facility are secured by liens with respect to inventory, accounts receivable, deposit accounts and certain related
collateral. In the event of a default that is not cured or waived within any applicable cure periods, the lenders’ commitment to extend further credit under our
revolving credit facility could be terminated, our outstanding obligations could become immediately due and payable, outstanding letters of credit may be
required to be cash collateralized and remedies may be exercised against the collateral, which generally consists of the Company’s inventory, accounts
receivable and deposit accounts and cash credited thereto. If we are unable to borrow under our revolving credit facility, we may not have the necessary cash
resources for our operations and, if any event of default occurs, there is no assurance that we would have the cash resources available to repay such
accelerated obligations, refinance such indebtedness on commercially reasonable terms, or at all, or cash collateralize our letters of credit, which would have
a material adverse effect on our business, financial condition, results of operations and liquidity.
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As of January 30, 2016, we have $4.805 billion in total indebtedness and we are highly leveraged. Our level of indebtedness may limit our ability to obtain
additional financing, if needed, to fund additional projects, working capital requirements, capital expenditures, debt service, and other general corporate or
other obligations, as well as increase the risks to our business associated with general adverse economic and industry conditions. Our level of indebtedness
may also place us at a competitive disadvantage to our competitors that are not as highly leveraged.
We are required to make quarterly repayments in a principal amount equal to $5.625 million during the five-year term of the real estate term loan credit
facility, subject to certain reductions for mandatory and optional prepayments. In addition, we are required to make prepayments of the real estate term loan
credit facility with the proceeds of certain asset sales, insurance proceeds and excess cash flow, which will reduce the cash available for other purposes,
including capital expenditures for store improvements, and could impact our ability to reinvest in other areas of our business.
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We must have sufficient sources of liquidity to fund our working capital requirements, capital improvement plans, service our outstanding indebtedness and
finance investment opportunities. The principal sources of our liquidity are funds generated from operating activities, available cash and cash equivalents,
borrowings under our credit facilities, other debt financings, equity financings and sales of non-operating assets. We expect our ability to generate cash
through the sale of non-operating assets to diminish as our portfolio of non-operating assets decreases. In addition, our recent operating losses have limited
our capital resources. Our ability to achieve our business and cash flow plans is based on a number of assumptions which involve significant judgments and
estimates of future performance, borrowing capacity and credit availability, which cannot at all times be assured. Accordingly, there is no assurance that cash
flows from operations and other internal and external sources of liquidity will at all times be sufficient for our cash requirements. If necessary, we may need to
consider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as modifying our business plan, pursuing
additional financing to the extent available, reducing capital expenditures, pursuing and evaluating other alternatives and opportunities to obtain additional
sources of liquidity and other potential actions to reduce costs. There can be no assurance that any of these actions would be successful, sufficient or
available on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements at the level and times needed
could have a material adverse impact on our business and financial position.
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