JC Penney lenders to bid for bankrupt department store

Talks to find a buyer for JC Penney are at an “impasse” and time is running out to keep the department store chain alive, according to the company’s attorney.

Discussions with three potential bidders, including the mall owners Simon Real Estate Group and Brookfieldwas underway and could eventually keep hundreds of stores open for business.

But to avoid an early liquidation, Penney’s major lenders, including H/2 Capital Partners, are now ready to make a credit offer to own the retailer as a stand-alone business, attorney Joshua said. Sussberg of Kirkland & Ellis during a Monday bankruptcy court hearing. A deadline of September 10 has been set to reach an agreement. Sussberg said the goal was to complete a transaction within 30 days.

“Our lenders will no longer be held hostage in negotiations with third parties,” Sussberg said. “While it is possible that one of the bidders will re-enter the deal, we can no longer sit idly by and let negotiating postures stand in the way of 70,000 jobs and our supplier base.”

Sussberg added that Penney is set to close a number of additional stores as talks with bidders have failed. The department store chain last month announced that it would lay off approximately 1,000 employees, as it moved forward with the closure of about 150 sites across the country. When it filed for bankruptcy, it still operated around 860 stores.

“Several sites that were on our initial shutdown list but have been removed…due to negotiations…will be shut down soon,” Sussberg said. The list of these locations has not yet been published.

Asked by a shareholder why Penney should be allowed to keep trying to work with lenders, U.S. Bankruptcy Judge David Jones said that if he didn’t, “every store would close…this will be done and more”.

“I have 70,000 people who need jobs,” Jones said. “I have stores in small towns that don’t have an alternative. … The alternative is the death of an entity.”

Penney, headquartered in Texas filed for Chapter 11 bankruptcy protection on May 15, overwhelmed with debt and bruised by the coronavirus pandemic.

Its restructuring process is still dragging on, hitting a snag this weekend when a bidder failed to respond to a proposal made in good faith, Kirkland’s Sussberg said.

In late July, the attorney told a virtual hearing that Penney was moving forward with a sale that is expected to close this fall. A liquidation was “not in the cards” he said at the time. The plan was to split Penney into an operating company and two real estate holding companies, one with the company’s distribution centers, which would be structured as real estate investment trusts.

The three bidders for Penney included private equity firm Sycamore, a duo of Simon and Brookfield, and Saks Fifth Avenue owner Hudson’s Bay Co., according to a person familiar with those discussions.

Representatives for Simon, Brookfield and Hudson’s Bay did not immediately respond to CNBC’s requests for comment. Sycamore declined to comment.

Simon has already recovered two other retailers that went bankrupt during the pandemic, with help from apparel licensing firm Authentic Brands Group. Together they acquired men’s suit maker Brooks Brothers and denim retailer Lucky Brand. Simon Property CEO David Simon said the company was looking make more deals to earn money and preserve recognized brands.

Sussberg said Monday that Penney had been furthest along in talks with bidders who owned more than 160 Penney department stores, without directly naming Simon and Brookfield. But since those have hit a wall, and sellers are “eager” to see if the company makes it to the holidays, Penney is offering a standalone transaction, he said.

Dozens of retailers, including J.Crew and other department store chains Neiman Marcus and Lord & Taylor, filed for bankruptcy during the Covid-19 crisis. Lord & Taylor last week announced plans to liquidate its remaining 38 stores.

Comments are closed.