J.C. Penney Shares Down On Financing Update

J.C. Penney JCP reiterated in an 8-K Monday morning that it will be receiving a $2.35 billion revolving line of credit from several lenders. The credit facility will replace the previous $1.85 billion credit line.

The news was initially announced in the company’s earnings report last Thursday, however Monday’s trading activity suggests that many investors are just becoming aware of the news, as shares were down more than three percent following the announcement on Monday morning.

Related: J.C. Penney Turnaround Still A Ways Off

There are two negative factors that investors may be considering. First, the increase in credit may indicate that the company needs more funding than expected to maintain an acceptable amount of liquidity. Second, the increased credit line may indicate that J.C. Penney will take on more debt than it would have otherwise, resulting in increased interest payments.

However, the announcement can be interpreted in a bullish way. For example, several financial institutions felt positively enough about J.C. Penney’s business to lend it money. It is also reasonable to argue that the increased borrowing capability can accelerate the company’s turnaround.

The sell off may also be the result of some profit taking following J.C. Penney’s strong earnings report last week. Most investors looking to exit their positions following the initial earnings pop would have done so during Friday’s session, but many still may be exiting Monday, especially funds with positions too large to liquidate over the course of a single day.

Shares are currently up around 12 percent since the company announced earnings after last Thursday’s close and were last trading at $9.59.