Down But Not Out: J.C. Penney Reaches $800 Million Rescue Deal with Landlords to Avoid Liquidation

https://www.zerohedge.com/markets/jc-penney-reaches-800-million-rescue-deal-landlords-avoid-liquidation

Don’t count the venerable – if bankrupt – department store and mall anchor tenant, J.C. Penney out just yet.

One week after we reported that J.C. Penney (docket #20-20182, in the U.S. Bankruptcy Court for the Southern District of Texas) was on the verge of liquidation after talks with its two largest landlords had collapsed, today the company’s lenders reached a tentative deal with mall landlords Simon Property Group and Brookfield Property Partners to buy the bankrupt chain. The deal, valued at $1.75 billion, would rescue the beleaguered department store chain from bankruptcy proceedings, averting a liquidation that would have threatened roughly 70,000 jobs and represented one of the most significant business collapses following the coronavirus pandemic, Joshua Sussberg, a Kirkland & Ellis LLP lawyer representing the company, said during a brief court hearing Wednesday, confirming an earlier Reuters report.

The landlords are poised to put $300 million toward the rescue and have agreed to a nonbinding letter of intent with J.C. Penney, he said. The operating company they are acquiring would assume $500 million of debt. The deal also calls for new financing from existing lenders; in the end, J.C. Penney will have about $1 billion of cash to fund its business when the deal closes, Sussberg said.

The financing includes a commitment for $2 billion of new asset-based lending led by Wells Fargo, as well as $500 million of so-called takeback debt from existing first-lien lenders, he said. The deal would split J.C. Penney into an operating company and two real estate holding companies.

If the tentative deal falls apart, J.C. Penney would resume its course for liquidation. Sussberg expressed optimism a deal would be codified and the judge encouraged the parties to keep working to seal an agreement.

“Time, as we’ve mentioned over and over again, is not our friend,” Sussberg said. “It is important — for this transaciton to stay together and for all these stores to stay open and for the 70-plus-thousand employees to stay employed — for us to move with lightning speed.”

J.C. Penney’s survival has hinged on sale negotiations, which have consumed the summer and drawn urgent directives from the company’s bankruptcy judge for parties to set aside what he labeled egos and negotiating postures to consummate a deal to save the beleaguered retailer. The talks dragged on for weeks in part amid haggling over lease terms, Reuters sources said. In late August, the discussions with Simon and Brookfield reached an impasse, prompting J.C. Penney to ask lenders to take control of its retail operations in addition to the real estate investment trusts they envisioned owning. After further discussions, the company reached a deal with Simon and Brookfield to buy the retail operations.

Any deal would require approval from the company’s bankruptcy judge and potentially be subject to competing bids in a court-supervised auction. This means that private equity firm Sycamore Partners and Saks Fifth Avenue owner Hudson’s Bay may have another say in the final transaction; the two vied for J.C. Penney’s retail business earlier this summer.

The post Down But Not Out: J.C. Penney Reaches $800 Million Rescue Deal with Landlords to Avoid Liquidation appeared first on NewsCetera.

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