Moody's cuts Penney ratings

Chain Drug Review, April 9, 2001

NEW YORK -- Saying that J.C. Penney Co.'s department stores and Eckerd Corp. drug chain are continuing to operate poorly and that improvements will be difficult to achieve anytime soon, Moody's Investors Service last month lowered the retailer's long- and short-term credit ratings to junk status.

The downgrading of Penney's senior unsecured debt and medium-term notes, issuer rating and senior unsecured shelf registration to Ba2, its second-highest junk grade, from Baa3, as well the reduction of the commercial paper of J.C. Penney Funding Corp. from a rating of Prime-3 to Not-Prime, means it will be more difficult for the retailer to borrow and may also make suppliers more leery about doing business with the company.

"The difficult competitive environment and the general economic weakness increase the challenge of turning these businesses around," a Moody's spokesman says. "The negative outlook reflects [our] concern that operating performance could deteriorate further if management is unsuccessful in implementing its strategies for improving its business, and that competitive and economic pressure may inhibit expected benefits from changes in operations that are in process."

Moody's downgrading follows almost a year of poor financial performances by Penney and Eckerd. After two consecutive losing quarters last year the company shuttered 45 department stores and nearly 300 Eckerd outlets.