Moody’s is materially overstating J. C. Penney Company, Inc. (NYSE:JCP) credit risk with its Caa2 rating. Our fundamental analysis highlights that JCP is much safer, with cash flows consistently exceeding operating obligations going forward. That said, despite their shortfall in 2018, their substantial capex flexibility would be able to service all obligations. Additionally, their sizable market capitalization should allow them access to credit markets to refinance if necessary. We therefore rate JCP six notches higher at an HY1 (equivalent to Moody’s Ba2) credit rating.
Moreover, Credit markets are grossly overstating credit risk with a CDS of 622bps and a cash bond YTW of 6.815%, relative to an Intrinsic CDS of 234bps and an Intrinsic YTW of 3.425%.
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