JC Penney draws almost 46 percent of credit line

Department store chain JC Penney currently

has both investors and suppliers worried. The company announced on Monday that it would draw 850 million dollars (almost 46 percent) from its revolving credit line of 1.85 billion dollars. Drawing the funds "provides more than its current funding needs to ensure our continued liquidity," said CFO Ken Hannah in a statement about the move.

With cash reserves that are dwindling faster than expected and losses of around 1 billion dollar, JC Penney has to make sure that it keeps merchandise coming. ‘‘Maintaining a seamless flow of merchandise is critical,’’ confirmed Marshal Cohen, chief retail industry analyst at market research firm The NPD Group. If shoppers see empty shelves, they’ll go somewhere else, he said.

JC Penney will use the money to fund working capital requirements and expenditures including restocking of inventory, mainly for the newly overhauled home departments, which are due to open next month. The company is also looking for alternative sources of funding.

The Plano, Texas-based firm also needs to assure suppliers that it is on an upward trend to stop them from potentially demanding payment in advance instead of 30 to 60 days after the shipment of goods. Suppliers may switch if they feel unsure of the retail chain’s future. This could have negative consequences for impending back-to-school and holiday orders, both critical periods for retailers.

The company indicated a strategy change when firing CEO Ron Johnson und re-hiring predecessor Mike Ullman. Johnson was behind the disastrous turnaround plan that included doing away with most discounts, bringing in new brands and transforming the store collections that ultimately cost the company close to 1 billion dollars.

Analysts believe that Ullman will bring back discounts and coupons and will assure suppliers because of his good relationships with them. Though shares of JC Penney rose by 12 cents to 14.74 dollars, the stock lost more than 65 percent of its value since February 2012 when Johnson introduced his turnaround plan and investors were still optimistic about it.