J.C. Penney is moving ahead with a sale process to keep its doors open and exit bankruptcy.
The department store chain has reached a tentative agreement with a group including Simon Property Group, Brookfield Property and first lien lenders, its attorney told a Texas bankruptcy court.
The agreement has been marked by a letter of intent, which is non-binding, but which the retailer is working to formalize into an asset purchase agreement over the next 10 days or so, Joshua Sussberg, a partner at Kirkland & Ellis LLP, who represents Penney’s, said at a hearing on Wednesday afternoon.
The deal envisions a $1.75 billion price tag and would include a $300 million equity check from Brookfield and Simon, as well as $500 million of financing from the retailer’s current debtor-in-possession and first lien lenders.
“We are in a position to do exactly what we set out to do at the very beginning of these cases, and that is preserve 70,000 jobs, a tenant for landlords, a vendor partner, and a company that has been around for more than a century,” Sussberg told the court.
The deal would also include an overall commitment in new asset-based lending financing led by Wells Fargo of $2 billion. All the financing as part of the proposal is expected to leave the company with roughly $1 billion when the transaction closes, Sussberg said.
The company plans to file the letter of intent publicly this week, and the transaction would be submitted for approval later on.
The development marks a turn of events since two weeks ago in August, when Sussberg last told the court the retailer was at a stalemate with outside bidders, and that it was moving ahead with a credit bid from its lender group comprising Brigade, H/2 Capital Partners, Sculptor Capital and others. A credit bid allows secured lenders to convert their debt into equity. The retailer indicated even at the time that it was very much still open to continuing talks with third party bidders.
Those talks were productive, Sussberg said Wednesday. A deal that would include the landlords of more than 160 J.C. Penney locations also offers a stronger picture of the retailer’s ongoing survival with a significant footprint.
“There have been twists and turns, but I think we’re at a place now where we have significant momentum behind us,” Sussberg told the court. “Simon and Brookfield, and the lenders, and the company, the creditors’ committee, are all committed to moving this forward quickly and saving J.C. Penney as we know it.”
A going concern sale is part of the reorganization plan that J.C. Penney’s advisers have described in court since it filed for bankruptcy in May. The retailer’s reorganization plan involves the division of its property business and an operating company, which is the Prop Co./Op Co. structure that the company’s advisers have described during the proceedings.
The Prop Co. portion would include 160 of Penney’s owned properties that would be put into a public real estate investment trust, while its distribution centers would be put into another REIT, Sussberg has previously told the court.
The operating company, which would comprise the retail business and also own properties and intellectual property, would lease properties under a master lease agreement with the property companies, Sussberg has said.