Now, based on the new $2.25 billion principal amount, J.C. Penney’s annual net interest expense will increase by almost $133 million, or a total of nearly $670 million over the five-year term of the loan.
Of course, this is great for the bottom line of Goldman Sachs Group, Inc. (NYSE:GS), assuming J.C. Penney will be able to repay the loan in full, but there’s undoubtedly risk involved for both companies. On that note, if J.C. Penney can’t deliver on its turnaround, you can bet the folks at Goldman Sachs Group, Inc. (NYSE:GS) will be the first in line to collect.
Foolish final thoughts
In the end, desperate times call for desperate measures, and I think it’s safe to say J.C. Penney is definitely desperate. However, while this huge loan is necessary for J.C. Penney to have a chance at survival, it’ll only make it that much harder for the company to start making money again. As a result, I’m standing by my assertion that investors should steer clear of J.C. Penney stock.
The article When $1.75 Billion Isn’t Enough originally appeared on Fool.com is written by Steve Symington.
Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends Goldman Sachs.
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