JCPenney files for reorganization under Chapter 11
SAN JUAN — Giant apparel and home retailer J. C. Penney, which employees some 85,000 people worldwide and has some 850 stores in the United States and Puerto Rico as well as its e-commerce site, has filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code.
It announced Friday that it entered into a restructuring support agreement (RSA) with lenders holding approximately 70% of its “first lien debt to reduce the company’s outstanding indebtedness and strengthen its financial position.”
The RSA is expected to reduce “several billion dollars of indebtedness, provide increased financial flexibility to help navigate through the Coronavirus (COVID-19) pandemic, and better position JCPenney for the long-term,” the company’s news release reads.
To implement the reorganization plan, the company filed for Chapter 11 in the U.S. Bankruptcy Court for the Southern District of Texas.
JCPenney said it “will file a number of customary first day motions with the U.S. Bankruptcy Court seeking authorization to support its operations during the financial restructuring process, including authority to pay non-furloughed associate wages, provide certain benefits to all associates, and to pay vendor partners in the ordinary course for all goods and services provided on or after the Chapter 11 filing date.”
JCPenney will close stores in phases, promising to disclose “specific store details and timing” in the coming weeks.
The company is gradually reopening certain stateside stores and offices “in a phased approach,” it said, adding that it will continuing to offer its curbside pickup service at open stores, as well as taking online orders.
The company had temporarily closed its six stores in Puerto Rico to adhere to the executive order that required non-essential retailers – excluding grocery stores, pharmacies, banks, and gas stations – to close.
“Penney is the biggest retailer to file for bankruptcy reorganization since the pandemic and joins luxury department store chain Neiman Marcus, J.Crew and Stage Stores. Plenty of other retailers are expected to follow as business shutdowns across the country have evaporated sales. In fact, U.S. retail sales tumbled by a record 16.4% from March to April,” the Associated Press reported Friday.
“The Coronavirus (COVID-19) pandemic has created unprecedented challenges for our families, our loved ones, our communities, and our country. As a result, the American retail industry has experienced a profoundly different new reality, requiring JCPenney to make difficult decisions in running our business to protect the safety of our associates and customers and the future of our company. Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy – and our efforts had already begun to pay off. While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt,” said Jill Soltau, chief executive officer of JCPenney.
Soltau continued, “Implementing this financial restructuring plan through a court-supervised process is the best path to ensure that JCPenney will build on its over 100-year history to serve our customers for decades to come. We believe the RSA and the widespread support we have received from our asset-based lenders and first lien lenders will allow us to pursue a financial restructuring on an expedited timeframe. We are also encouraged by the level of support we have received from our vendor partners, landlords, and other stakeholders, whose confidence in our business and our people is expected to contribute to a successful reorganization.”
JCPenney says it has about $500 million in cash and has “received commitments for $900 million in debtor-in-possession (DIP) financing from its existing first lien lenders, which includes $450 million of new money.”
Following court approval, the company said, “this financing, combined with cash flow generated by the Company’s ongoing operations, is expected to be sufficient to meet JCPenney’s operational and restructuring needs. As part of the DIP commitment from its existing lenders, JCPenney will explore additional opportunities to maximize value, including a third-party sale process.”
Kirkland & Ellis LLP is serving as the company’s legal adviser, Lazard is serving as its financial adviser, and AlixPartners LLP is serving as restructuring adviser.
“We are continuing to serve our customers as we move through this process with a commitment to working seamlessly with our vendor partners and landlords. We look forward to emerging from both Chapter 11 and this pandemic as a stronger retailer, continuing to implement our Plan for Renewal, and building capabilities focused on satisfying customers’ wants and needs,” Soltau concluded.
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