j.c. penney sign

J.C. Penney Co. Inc. is running out of time.

The company has been racing to secure the financing it needs to see it through a bankruptcy, but as of 6 p.m. on Wednesday did not have a debtor-in-possession loan lined up even though it is seen as filing for Chapter 11 protection on Thursday or Friday.

Penney’s could still line up funding in time and is said to be working in that direction, but the process is coming down to the wire and some sources said its options are diminishing — although a white knight could emerge. While landlords looking to protect their own interests as well as existing lenders had considered stepping in with DIP financing — effectively doubling down on their Penney’s bets — no deal has come together, sources said.

If Penney’s is not able to hammer out some kind of financing agreement, the department store could file without financing and try to pay its own way through the process, what bankruptcy attorneys refer to as a “free fall” bankruptcy.

Penney’s started skipping interest payments on April 15, beginning a 30-day grace period the company used to scramble for “strategic alternatives” as its turnaround ran headlong into the coronavirus consumer shutdown.

Penney’s reopened 25 stores on Wednesday — a small sign of life that has 41 of its 850 doors fully open once more. But any brick-and-mortar sales coming in now are seen as too little, too late for the company starved of revenues in the era of social distancing and already struggling to be relevant in the American retailing landscape before the pandemic.

The clock runs down on Friday and sources said the “alternatives” explored during the grace period have narrowed to a bankruptcy filing that would give the company a chance to rework its $5 billion debt load, which includes leases, bonds and bank loans. 

WWD reported on April 30 that a Penney’s bankruptcy filing could come today or Friday and that timing does not appear to have changed, although a last-minute tweak could always push the filing later. 

Retail routinely has a few companies on the edge and just barely holding on, but Penney’s plight marks an unusual shakeout in an extraordinary time that saw both Neiman Marcus and J. Crew Group slip into insolvency last week.

Penney’s predicament is also another sign — if one was needed — of just how far and quickly the fortunes of department stores have faded as e-commerce rose and mall traffic faded. In an earlier age, Penney’s was seen as solid enough to command 100-year debt, selling $500 million in corporate bonds set to expire in 2097.

That time now seems long going, although the Plano, Tex.-based retailer still has a big business with annual sales of $11.2 billion. It is expected to slim down with the help of the bankruptcy court, closing stores to weather the COVID-19 disruption and to better position itself in a more digital world. 

Now the company faces the grueling Chapter 11 process. 

According to a CNBC report this week, Penney’s was in talks to secure $450 million in DIP financing, only half of which would be available right away. 

Having a small kitty going into bankruptcy would leave Penney’s with less room to maneuver. Neiman Marcus Group went into Chapter 11 with a $675 million DIP package for its business, which draws $4.7 billion in annual revenues, while J. Crew’s DIP totaled $400 million for its $2.5 billion business. 

Already, the process has been a tough one for Penney’s.

In addition to drawn-out negotiations with lenders, the company sparred with its long-time partner, the LVMH Moët Hennessy Louis Vuitton-owned Sephora, which has 600 shop-in-shops in the Penney’s stores. 

Sephora expressed its right to serve a default notice to the retailer as part of “good faith wind-down discussions” that were taking place as the firm barreled toward bankruptcy. The fight moved to federal court in Texas before the two sides buried the hatchet last week, reaffirmed their partnership and amended their agreement.  

Penney’s, along with Neiman Marcus and J. Crew, was among the retailers that came into the COVID-19 shutdown on bankruptcy watch lists and was talking with lenders about restructuring debt and postponing maturities.  

Chief executive officer Jill Soltau always faced something of a tough way forward with Penney’s, but was generally seen as having more time to prove the company could be turned around. She sought to sharpen the business with less inventory and five distinct lifestyle shops in the women’s department, new outdoor-oriented shops and more. 

“There has been a lot that has gone on here, but this is going to take some time,” Soltau told WWD in October. “Retail is a dynamic business and there are many facets that are all interconnected and interrelated. We have a very clear view of what we are doing and what we need to continue to do and we are moving as quickly as we can…We are building this plane while we’re flying it.”

The problem was she had no idea Penney’s was flying into a global crisis and the worst economic downturn since the Great Depression. 

With Penney’s nearing its end and the outlook still so uncertain, the focus starts to turn more to the supplier base, which has its own problems and is finding that more and more of the stores they relied on are going to be not making their back payments or are going dark for good.