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The Deal: J.C. Penney Shops for Financing as Holidays Loom

Tickers in this article: JCP

NEW YORK (TheStreet) -- J.C. Penney is one among many apparel retailers bracing for a less than bright holiday season after the industry rang up disappointing second-quarter results followed by a lackluster back-to-school shopping season.

But in J.C. Penney's case, that could mean life or bankruptcy.

The U.S. Commerce Department said retail sales inched up only 0.1% in August, the month that encapsulates back-to-school sales, according to the U.S. Department of Commerce. (That figure did not include auto sales).

That led retailers to cut back on their orders for the holiday season, industry observers said.

All of this amounts to bad news for distressed retailers like Plano, Texas-based department store chain J.C. Penney, which needs a strong holiday to alleviate its cash burn.

The retailer is trying to raise more capital, according to a Bloomberg report, a sign that it knows it will need it sooner, rather than later.

Some of those the store could be looking toward for additional financing include hedge funds that recently invested, just as activist investors William Ackman and Vornado Realty Trust sold their stakes and got off the board. The funds include Richard Perry's Perry Capitalwith an 8.62% stake, J. Kyle Bass' Hayman Capital Management, which took a 5.2% stake and Glenview Capital Management with its 9.1% stake.

Earlier this year, Goldman Sachs arranged $2.25 billion in loans to the beleaguered retailer backed by its real estate, ostensibly to give it enough cash to last through the holiday season.

In July, Moody's Investors Service calculated J.C. Penney would burn through $1.4 billion in cash by year's end, but in just the second quarter the retailer said it had spent more than $700 million, beating analysts' expectations on the downside.

Before he got off the board and sold off his entire stake in J.C. Penney, activist investor William Ackman, the billionaire hedge fund manager who runs Pershing Square Capital Management, offered additional liquidity to the company in return for equity control of the company and the right to name a new CEO, after his first choice, ex-Apple executive Ron Johnson was fired in the spring.

The retailer, however, turned Ackman down, telling him it could raise capital elsewhere. That led the hedge fund management to exit his investment and get off the board, the source said.