A J.C. Penney mall store.

J.C. Penney Co. Inc. is moving fast to emerge from bankruptcy

The retailer told a bankruptcy court in Texas on Thursday that it is reopening hundreds of stores, negotiating rent relief, and aiming to hit its goal of firming up a business plan with its lenders by mid-July. 

The retailer has already reopened more than 300 stores so far, as a number of states have loosened lockdown restrictions during the coronavirus pandemic. And it plans for 500 stores to be open by early June, Joshua Sussberg of Kirkland & Ellis LLP, an attorney for J.C. Penney, told U.S. Bankruptcy Judge David Jones at a status conference hearing on Thursday. 

In the meantime, the company has also asked its landlords for a three-month abatement of rent for the months of June, July and August, Sussberg said. Penney’s plans to formally ask the court for the kind of rent deferment that other retailers, including J. Crew, have sought and received during the COVID-19 crisis that has shut stores and cratered sales.  

“As your honor mentioned, this case needs to move incredibly fast, [and] we intend to move incredibly fast,” Sussberg said at the hearing.  

The pace of reopenings around the country during the pandemic has prompted discussions about store employees’ safety, and is an issue that resonates in the context of retailers planning to emerge from Chapter 11 as quickly as possible. To date, there are more than 1.7 million confirmed cases of COVID-19 in the U.S., which has resulted in a historic toll of more than 100,000 deaths in the country, according to the Johns Hopkins University’s ongoing tally. 

In a statement Thursday, Penney’s said that it was requiring store employees to wear protective gear, and providing them with masks, gloves and hand sanitizer. The company is also trying to reduce contact between employees by staggering shifts, and has placed Plexiglass barriers at cash registers, it said. The company said it is also offering “contact-free curbside pickup” at all its reopened stores. 

“We continue to listen to our associates and customers and make additional adjustments as needed,” Jim DePaul, executive vice president of stores at J.C. Penney, said in the statement. “We are so grateful to our associates for helping us navigate through this environment as we build on our long history and continue the J.C. Penney story.”

On Thursday, Jones asked the retailer’s advisers whether it was implementing restrictions on the number of people at its open stores, and about what kind of mask requirements it was imposing.  

Sussberg said that the company’s approach depended on state requirements. He said that Penney’s has also introduced options for customers to order products online, drive to store locations, and receive their orders without having to leave their vehicles, by having employees load their purchases into their trunks.  

”It really is a state-by-state analysis, depending upon the restrictions, and the loosening of those restrictions in various states,” he told the court. “And as part of the store reopening process, it’s incumbent on the management team, to ensure from a compliance perspective, that everything’s being adhered to, and that’s what they’ve been focused on.” 

J.C. Penney faces some crucial next steps in the bankruptcy. In the coming days, the retailer will face a creditors committee, which is expected to be appointed by the U.S. Trustee in the case on Thursday. And on June 2, the retailer will seek approval for its proposed debtor-in-possession financing. 

When J.C. Penney filed for Chapter 11 on May 15, it indicated that it had entered into a restructuring agreement with a related DIP financing plan, supported by a group of lenders that hold about 70 percent of its first lien debt. That package contemplated a $900 million facility, of which half would be used to pay off the retailer’s pre-petition secured debt, known as a “roll up,” while the other half would be new money that would go into the business.

The first $225 million of that new money financing would become available when the court grants its initial approval, potentially next week, while the other $225 million would become available in two months, according to the retailer.

On Thursday, Sussberg indicated that another group of lenders, including some first lien lenders, may want in. He said that negotiations are ongoing on a potential alternative DIP facility which he said would provide more liquidity on the first draw than $225 million. 

“We’re in the business of finding the best financing available under the circumstances, taking into account all of the relevant factors,” he said. 

The retailer also expects more scuffles along the way. Shareholders, generally the lowest in the bankruptcy hierarchy for repayment, have voiced concerns about being left out in the process. One filing Thursday by a shareholder argued that the court should appoint an equity committee to address the shareholders’ interests in the case. 

Sussberg said that the company would respond to the motion. “While we disagree with the commentary and take issue with many of the things said, we understand where it is coming from, and in due course, we’ll address the concerns and the issues that have been stated,” Sussberg said at the hearing. 

Jones had a more somber observation. 

“No one ever loses equity in a bankruptcy case,” Jones said. “Equity gets lost long before the bankruptcy case ever gets filed. All that a bankruptcy does is, it forces everybody to recognize history.”  


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