J.C. Penney has filed for Chapter 11 bankruptcy protection and entered into a restructuring support agreement with lenders holding approximately 70% of its first lien debt in an effort to reduce the company’s outstanding debt and strengthen its financial position.
The company intends to reduce its footprint, closing stores in phases. It will release a list of first-phase store closings over the next few weeks. In the meantime, the company is beginning to welcome customers back to select stores while continuing to offer contact-free curbside pickup at all open locations. At the same time, J.C. Penney’s e-commerce distribution centers continue to fulfill online orders and customer care centers are answering inquiries in the usual course of business.
The agreement covers terms for a pre-arranged financial restructuring plan that the company stated will 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.
The company noted that it has about $500 million in cash on hand as of the Chapter 11 filing date. It has received commitments for $900 million in debtor-in-possession financing from its existing first lien lenders, which includes $450 million of new money. With court approval, the company added that the financing, combined with cash flow generated by the company’s ongoing operations, should be sufficient to meet J.C. Penney’s operational and restructuring needs. As part of the DIP commitment from its existing lenders, the company will explore additional opportunities to maximize value, including a third-party sale process.
Jill Soltau, J.C. Penney’s CEO, said, “The coronavirus pandemic has created unprecedented challenges for our families, our loved ones, our communities and our country. As a result, the American retail industry has experienced a profoundly different new reality, requiring J.C. Penney to make difficult decisions in running our business to protect the safety of our associates and customers, and the future of our company. Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy, and our efforts had already begun to pay off. While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt.”
Soltau continued, “Implementing this financial restructuring plan through a court-supervised process is the best path to ensure that J.C. Penney will build on its over 100-year history to serve our customers for decades to come. We believe the RSA and the widespread support we have received from our asset-based lenders and first lien lenders will allow us to pursue a financial restructuring on an expedited time frame. We are also encouraged by the level of support we have received from our vendor partners, landlords and other stakeholders, whose confidence in our business and our people is expected to contribute to a successful reorganization.”
She pointed out that the company has recently named “an experienced team of retail executives who remain focused on rebuilding our business and restoring financial strength to J.C. Penney. This team has continued to innovate even during these challenging times, implementing substantial improvements to our flagship e-commerce platform to increase efficiency and ensure our loyal customers continue to have access to the products they need through elevated shopping experiences.”