First, a few well-known facts, widely accepted by all (exept Monkeybreath, Pennyfraud and other pumpers):
- JCP is loading up on debt by tapping credit lines and looking into borrowing against real estate holdings. The company is desperate for liquidity.
- As the amount borrowed raises, credit ratings will be further lowered. JCP bonds are already rated non-investment grade.
- According to the last figure I saw, JCP pays $250 million annually to service the debt. This was reported before the most recent borrowings, so the figure is now higher.
- JCP has missed their quarterly estimates six times in a row. May 13th will make seven. I had initially thought that an ugly 1st Quarter Earnings Report would only midly affect the share price, since expectations on Wall Street are already low and built-in to the PPS.
However, it is worth noting that, on the day Ullman's appointment was announced, the share price dropped 11 percent. Wall Street cast a big No Confidence vote on Ullman's appointment and JCP's chances for survival in its current form. Now, I believe the release of the 1st Quarter Earnings Report will spark even more stories and analyst comments suggesting JCP will/should file for bankruptcy protection.
By filing for bankruptcy protection, Ullman would accomplish a couple of things:
A) Give JCP time and room to restructure itself. Cast off losing, under-performing stores, get out from under a massive debt burden, re-emerge as a smaller, more focused entity.
B) Wipe out the value of all current shares outstanding. They would be worth nothing once JCP files for bankruptcy protection. This would include Ackman's holdings.
Sweet revenge! Save the company on one hand and, at the same time, stick it to the guy who ousted you in the first place.Ackman is, along with RJ, primarily responsible for destroying JCP. A win-win for Ullman...save JCP/humiliate Ackman in the process.
Love the scenario - only question that comes to mind is you would be screwing the guys who just lent you 850M on the credit line and 500M(projected loan) - - - these aren't stupid people who are giving you this money - - - - what do they get out of it ?
Unfortunately, they get screwed. Happens all the time and it is a risk lenders take. They can read a balance sheet and they have a pretty good idea of the risks involved. In truth, they write the loss off so, in reality, the ultimate loser is the American taxpayer.
The scenario is pretty evil isn't it? But it is not all that farfetched, either.