The retailer appeared again before Texas bankruptcy Judge David Jones with a plan in hand to exit its Chapter 11 proceedings that began in May, and a draft version of an asset purchase agreement to sell its retail operations, or OpCo, in the terminology of the case, to Simon and Brookfield.
According to court filings, the planned sale would involve creating a new property business, or PropCo, that would have 160 owned and ground-leased stores and six distribution centers, and which would be owned by Penney’s first-lien majority lenders, who are also behind a large part of its debtor-in-possession financing. The retailer’s majority first-lien group includes H/2 Capital Partners, Sculptor Capital, Brigade and Silver Point, among others.
The highly anticipated filings were the outcome of marathon mediation sessions before Judge Marvin Isgur of the same court, which began last week and are ongoing, J.C. Penney attorney Joshua Sussberg of Kirkland & Ellis LLP told Jones on Tuesday. Under the planned sale, the OpCo would lease properties under a master lease agreement with PropCo, but the terms of that master lease agreement are still being worked out, he said.
Sussberg alluded to the delays in the case so far that had raised concerns about whether the deal could be finalized before the holiday shopping season. He told the court the parties would be ready to appear for a sale hearing that is tentatively scheduled for Nov. 2.
“For the first time in a long time, your honor, I’m highly confident that the missed deadlines are a thing of the past, and JCP’s future is finally secure,” Sussberg told the court Tuesday.
“The OpCo sale transaction must get approved in the near term, if we are going to save this business and the 60,000 jobs that are on the line,” he said.
Components of the overall transaction are expected to draw more formal and detailed objections over the coming week. A minority first-lien lender group, which previously raised objections over the majority first-lien lender group’s role in the discussions, has sent in its own proposal to join the transaction, its attorney told the court Tuesday.
The minority group’s lawyer, Philip Dublin of Akin Gump Strauss Hauer & Feld LLP, told the court that the group had sent commitment letters last week for financing and a transaction, which it argues would offer more value to the estate and other creditors than the majority first-lien group’s credit bid.
The court is expected to hear more details on its objections and counter proposal at a hearing scheduled for Oct. 26, after the parties review Tuesday’s filings, and the retailer’s ongoing mediation concludes.
“We don’t fully understand how this is all playing out, and I understand your honor doesn’t either,” Dublin told the court Tuesday. “[There are] still a number of issues to be worked out.”
A credit bid allows secured creditors in a bankruptcy to trade their secured debt for a bid to own the company. In this case, the majority first-lien group has put in a credit bid for roughly $900 million in DIP loans and roughly $100 million in term loan and first lien notes, according to court filings.
On Tuesday, Andrew Leblanc of Milbank LLP, who represents the majority first-lien lender group, sought to push back against the minority lender group’s efforts to participate in the sale. Leblanc told the court that their deal with J.C. Penney and Simon and Brookfield is a “single integrated credit bid that Simon and Brookfield are participating in.”
“Ours is not a plug and play agreement,” he said.