J.C. Penney stated in a bankruptcy court document that it must emerge from Chapter 11 quickly in preparation for the 2020 holiday season, shortly after announcing that it had received approvals from the U.S. Bankruptcy Court for the Southern District of Texas regarding First Day motions related to the company’s voluntary Chapter 11 petitions, including approval for it to access and use its approximately $500 million in cash collateral.
The court authorized J.C. Penney to continue paying non-furloughed associate wages, provide certain benefits to all associates, and to pay vendor partners in the ordinary course for all goods and services provided on or after the Chapter 11 filing date, among other permissions.
In announcing the bankruptcy court approvals on May 16, Jill Soltau, J.C. Penney CEO, said, “We are pleased to have received approval of these motions, which will enable us to continue implementing our Plan for Renewal and operating our business to serve the needs of our loyal customers. We thank the court for convening on a weekend to ensure that J.C. Penney can hit the ground running on Monday with approval of our First Day motions, and we are appreciative of the widespread support we have received from our asset-based lenders and first lien lenders and noteholders as we manage through the current environment. By entering this restructuring support agreement with our lenders, we expect to reduce several billion dollars of indebtedness, provide increased financial flexibility to help navigate through the coronavirus pandemic, and better position J.C. Penney for the long-term.”
On May 15, J.C. Penney entered into a restructuring support agreement with lenders holding approximately 70% of J.C. Penney’s first lien debt to reduce its outstanding indebtedness and strengthen its financial position as detailed in its bankruptcy filing.
According to a May 18 bankruptcy court filing, J.C. Penney conducted several weeks of extensive, arm’s-length negotiations with first lien group members and reached the agreement on a comprehensive, pre-negotiated restructuring.
The agreement included several key terms, J.C. Penney indicated, including:
A $900 million senior secured superpriority delayed-draw postpetition financing facility, the DIP facility, $450 million of which will be in the form of new money, committed by certain consenting first lien lenders.
The transaction will be effectuated through a separation of certain of J.C. Penney real estate into a real estate investment trust with the remaining assets and operations contained in the reorganized operating business.
A market testing process seeking interest and bids in providing debt or equity financing to the reorganized operating business and/or purchases of some or all of the assets of the debtors. A sale “toggle” allowing for a potential 363 sale of all of the debtors’ assets upon the occurrence of certain conditions, unless otherwise instructed by a required portion of the consenting first lien lenders.
According to the filing:
“The transaction contemplated by the RSA represents J.C. Penney’s best and most viable option to emerge from chapter 11. The transaction itself is necessarily predicated on speed: It is not an option to languish in Chapter 11 during key business seasons with value depleting at an astonishing rate due to the high costs of being in Chapter 11. To avoid the fate of so many of its peers, J.C. Penney must move swiftly towards consummation of a transaction that allows it to emerge before the critical holiday season. Failure in these efforts is not an option, with nearly 85,000 associates depending on the right outcome here.”