Moody's on April 14 downgraded J. C. Penney Company Inc.'s corporate family rating to Caa3 from Caa1 and its probability of default rating to Caa3-PD from Caa1-PD to reflect the expected adverse impact of the coronavirus pandemic on the already struggling department store chain.

The rating agency also revised the outlook to negative from stable.

"Although J.C Penney['s] liquidity is adequate, the widespread store closures as a result of the coronavirus pandemic and the continued suppression of consumer demand is expected to pressure J.C. Penney's EBITDA, impede its turnaround strategy and weaken its leverage to unsustainably high levels," Moody's Vice President Christina Boni said in a statement.

Moody's also downgraded J. C. Penney Corp. Inc.'s senior secured ABL Revolving Credit Facility to Caa1 from B2, its senior secured term loan and senior secured notes to Caa2 from B3, its secured second lien notes to Ca from Caa2, and its senior unsecured notes to C from Caa3.

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The downgrade reflects the impact of the breadth and severity of the pandemic on J.C. Penney and the credit quality deterioration it has triggered, according to Moody's. The agency said the department store sector is one of the hardest-hit industries in the coronavirus crisis because of its sensitivity to consumer demand and sentiment.

Meanwhile, the negative outlook reflects the challenges posed by COVID-19 to improve the company's sales and operating margins given its elevated leverage and the increased risk of a debt restructuring, the rating agency said.

"The weaknesses in J.C. Penney's credit profile, including its exposure to potential unit closures, have left it vulnerable to shifts in market sentiment in these unprecedented operating conditions and J.C. Penney remains vulnerable to the outbreak continuing to spread," Moody's said.

In March, J.C. Penney drew approximately $1.25 billion from its $2.35 billion revolving credit facility to bolster its cash position above its $386 million of cash on hand as of Feb. 1., leading to significant cash flow deficits in fiscal 2020. Moody's estimates that EBITDA could decline in excess of 80% in fiscal 2020 before slowly recovering in 2021 and it will take well into 2022 before EBITDA reverts back to the approximately $600 million of EBITDA realized in 2019.

The agency said it could upgrade the retailer's ratings if the company maintains a good liquidity profile and if it shows consistent growth in sales and operating earnings, among other factors.