Updated: J.C. Penney Moves Toward A Simon And Brookfield Buyout

Joshua Sussberg of the law firm Kirkland & Ellis, representing J.C. Penney, has told the United States Bankruptcy Court for the Southern District of Texas that Simon Property Group and Brookfield Property Partners had signed a non-binding but fully executable letter of intent for the purchase of J.C. Penney.

As recorded by the court, Sussberg called the letter of intent the “guts” of a transaction, which includes the lenders, J.C. Penney and Simon and Brookfield, contemplating a $1.75 billion total enterprise and adjustments to working capital, as well as financing arrangements that will allow the retailer to keep operating.

Sussberg said the transaction still has a “ways to go” to implement a final agreement but characterized the letter of intent as a “milestone” to keep J.C. Penney in business and to save 70,000 jobs.

UPDATE: After the court session ended, J.C. Penney issued an announcement saying it planned to seek approval of a disclosure statement and, ultimately, confirmation of a plan of reorganization in parallel with the sale process. The company expects to execute a stalking horse asset purchase agreement that will track an executed letter of intent. The enterprise $1.75 billion value includes a combination of cash and new term loan debt, J.C. Penney said.

The agreement contemplates the formation of a separate real estate investment trust and a property holding company that will take over 161 of the company’s real estate assets and all of its owned distribution centers. J.C. Penney’s ad hoc group of first lien lenders will own the property holding company. The operating and property holding companies will enter into a master lease covering the cited properties and distribution centers.

“We have determined that an agreement with Brookfield and Simon, as well as the formation of separate real estate investment trusts owned by our first lien lenders, is the best path forward to maximize value for our stakeholders, ensure we keep the most stores open and associates employed, and position J.C. Penney to build on our over 100-year history,” said Jill Soltau, CEO, J.C. Penney. “The interest in our operations reflects our company’s strength and our loyal customer base. It is a testament to the hard work and dedication of our talented associates and the progress we have made in implementing our plan for renewal to offer compelling merchandise, drive traffic, deliver an engaging experience, fuel growth and build a results-minded culture. As we continue to move through the sale process, our focus will remain on serving our customers and working seamlessly with our vendor partners. We have been a trusted partner to all of our stakeholders since 1902, and we expect to continue that track record for decades to come under the J.C. Penney banner.”