Even If JCPenney Raises Serious Cash From This Share Offer, It Will Need A Historic Holiday Season To Survive

Even if JC Penney is able to raise the $932 million it's hoping for in its recent share offering, it still has to have a "historic" holiday season to survive.

Why? Because debt. That's why.

Brian Sozzi, CEO & Chief Equities Strategist at Belus Capital Advisors, reminded everyone of this fact in a note last month. JC Penney has some serious bills to pay, and like all bills, there's a deadline.

Sozzi wrote:

Under its newly expanded, $2.25 billion credit agreement, outstanding balances have to be repaid by April 4, 2014. At the end of the first quarter, JC Penney had remaining availability of $526.0 million. The company will need a historic holiday season and start to 2014 to fund the payment of borrowings with cash on hand.

After announcing that it would sell 84 million shares at $9.65, JC Penney stock is down 10.6% to $9.32. All over Wall Street, analysts are lowering their price targets too. Citi has lowered its target to $7, and JP Morgan has it at $8.

Goldman, after writing a note about JC Penney's cash problems that sent the stock down over 15% this week, has a the bull case for the stock at $20, and the bear case at $1.

So lets walk through all the possible scenarios here.

JC Penney could us the cash it gets from this share offering to have an amazing holiday season, kill it in Q1 2014, and pay off their creditors easily. That seems highly unlikely at this point. In fact, analysts aren't even expecting the company to turn a profit. They're expecting losses of $0.95 a share.

So it's more likely that JC Penney will not have a great holiday season at all. In that case, according to Sozzi, the company does have an option - selling real estate.

"Real estate is tied to prior round of financing," he said. "[The] company did tell me they have 10-20 stores in upper income malls they could sell to mall developers to raise cash. But in retail, these situations take on a mind of their own. Once a domino is pushed down, the rest very often continue to fall in order. A share issuance, and convertible debt offerings, are often a company's last efforts to prevent an ugly end and a trip to the courts (reorganization). Sounds odd, but the best tell on the future of JC Penney will be to watch the stock price every day, it's now pricing in probable business outcomes for 1Q14."

Refinancing, Sozzi added, is unlikely. And if JC Penney does manage to renegotiate with its creditors, rates will worsen.

We'll be watching.