J.C. Penney Pitches Chapter 11 Sale to Lenders as Other Bidders Balk -- 2nd Update
August 31 2020 - 6:43PM
Dow Jones News
By Andrew Scurria
J.C. Penney Co. is flirting with collapse, eager for lenders to
agree to buy its assets out of bankruptcy after talks broke down
with potential bidders including landlords Simon Property Group
Inc. and Brookfield Property Partners LP.
"We've hit a stalemate" in negotiations with several outside
bidders, Penney's bankruptcy lawyer Joshua Sussberg said Monday
during a hearing in U.S. Bankruptcy Court in Corpus Christi, Texas.
The department-store chain instead will pursue a bankruptcy sale to
top lenders, including H/2 Capital Partners LLC, that would turn
them into owners in exchange for debt forgiveness, Mr. Sussberg
said.
"Our lenders are no longer going to be held hostage in
negotiations," he said, adding that Penney intended to negotiate
and document the lender deal within the next 10 days. No agreement
has been reached.
Putting the retail assets in lenders' hands wasn't the first
choice for Penney or the lenders. Their lawyer, Andrew LeBlanc,
said the other bidders "have been a disappointment" and that trying
to hammer out a takeover so quickly is a "heavy lift."
Negotiations have dragged on past several lender-imposed
deadlines. The longer Penney lingers in bankruptcy, the greater the
chance of a liquidation that would dismantle the company's retail
operations and put most of its 70,000 employees out of work.
Penney officials had been in advanced talks with Simon, the
biggest mall owner in the U.S. by number of locations, and
Brookfield, another big shopping-center company, about the sale of
the chain's retail operations and some real estate. Private-equity
firm Sycamore Partners also submitted a bid.
Mr. Sussberg said talks had stalled as "negotiating postures and
egos have not necessarily been set aside." The lawyer had
previously expressed optimism that a deal to preserve the business
was within reach.
Brookfield declined to comment. A representative for Simon
didn't immediately respond to a request for comment.
After years of missteps, Penney filed for bankruptcy in May when
the coronavirus pandemic shut down nonessential shopping across the
country and forced a parade of department stores and other
retailers into chapter 11.
The company has since reopened stores but roughly 150 of the 850
locations it had when it entered bankruptcy are closing for
good.
Mr. Sussberg said Monday that more stores will be shutting their
doors. Stores inside Simon and Brookfield malls had remained open
as the landlords negotiated with the company, but some of those
will now be slated to close, according to a person familiar with
the matter.
Simon and Brookfield emerged as the leading contenders to buy
Penney's retail assets in recent weeks, eclipsing other bidders.
Simon's interest marked its latest foray into acquiring distressed
tenants after it participated in buying Forever 21 Inc. out of
chapter 11 in February and purchasing AĆ©ropostale Inc. in 2016.
Simon has agreed to buy Brooks Brothers Group Inc. out of
bankruptcy in a joint bid with apparel-licensing firm Authentic
Brands Group LLC. The mall owner has also been in discussions with
Amazon.com Inc. about the possibility of turning space left by
ailing department stores like Penney into Amazon distribution hubs.
Penney is one of Simon's top anchor tenants, second only to Macy's
Inc.
Penney entered bankruptcy proposing to split its retail
operations and its real-estate holdings into separate businesses.
The company was seeking bidders to take control of an operating
company that would hold Penney's intellectual property and most of
its stores.
Lenders were expected to carve out Penney's distribution centers
and 160 stores into investment trusts while writing off portions of
a $5 billion debt load.
Negotiations stalled over disagreements about whether the
landlords or the lenders would have authority to close or sell
stores, according to people familiar with the matter. Penney is now
seeking a sale to lenders including H/2, Sixth Street Partners and
Sculptor Capital Management through a credit bid, allowing the
lenders to take control of the assets by forgiving debt.
Write to Andrew Scurria at Andrew.Scurria@wsj.com
(END) Dow Jones Newswires
August 31, 2020 18:28 ET (22:28 GMT)
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