Stock traders JC Penney beg bankruptcy judge
Amateur investors who stocked up on JC Penney Co. stock when the retailer went bankrupt are now asking a judge to spare them from complete annihilation.
“I hope and pray that you consider shareholders,” 50-year-old individual investor John Hardt wrote in a letter dated May 25, one of dozens sent to the court in Corpus Christi, Texas, charged. business in recent months.
Hardt is among a growing number of retail traders – many driven by lockdown boredom and free online trading – who have piled into the stock market. Amateur speculation is not new, but for the first time, experts can recall, investors are buying shares of even bankrupt companies. Hertz Global Holdings Inc., oil driller Whiting Petroleum Corp. and JC Penney have all seen their stock prices rise in recent sessions, despite being in Chapter 11.
Those gains almost always prove to be fleeting, leaving retail traders with little to show for their stakes other than a costly lesson in the US corporate bankruptcy process — where shareholder value almost disappears as a rule. This is because all the creditors need to be cured before the shareholders get anything. For JC Penney investors, nothing suggests that this time will be any different.
“If there is a possible way – any way – to give meaningful payback to shareholders, we will fight for it,” said Joshua Sussberg of Kirkland & Ellis, the bankruptcy attorney for JC Penney, during a hearing. a hearing on June 9.
Family investors who insist on betting on troubled companies would be well advised to steer clear of those that are bankrupt or near bankruptcy, said Fred Ringel, partner and co-chair of the law firm’s bankruptcy department. Robinson Brog Leinwand Greene Genovese & Gluck. “People who buy stocks hoping they won’t be wiped out by bankruptcy just don’t understand the process,” Ringel said.
He added that he was baffled to see retail investors pouring money into bankrupt stocks given the complexity of the restructuring process. “I don’t understand this phenomenon at all,” he said.
JC Penney requested Chapter 11 in mid-May. After climbing as high as 67.9 cents last month, the company’s stock is trading around 30 cents. Some of the retailer’s most junior debt — which still ranks ahead of stocks in the payout line — is priced at less than 2 cents on the dollar. This implies extremely slim chances that the bondholders will be reimbursed and, therefore, that nothing will be left for the shareholders.
Hardt, contacted by Bloomberg last week, said he had “no knowledge of the bankruptcy process” before buying about 10,000 JC Penney shares. The Plano, Texas native said he’s already sold the position.
Several of JC Penney’s shareholder letters criticize the company’s failure to announce a buyer so far, after the media cited several potential bidders, including Amazon.com Inc. Bloomberg reported in May on talks between Authentic Brands Group LLC and shopping center owners Simon Property Group Inc. and Brookfield Property Partners LP to acquire the chain.
Retail investors hoping for a sale may have thought that a buyer would pay cash for the outstanding shares. Yet this is virtually unheard of in bankruptcy, where any asset value that remains after legal costs belongs to lenders with first lien claims. Once settled, other creditors, including lenders and unsecured sellers, are next. JC Penney filed for bankruptcy with over $2 billion in secured debt and $8 billion in total debt.
Some recent JC Penney investors have said in interviews that they bought shares in hopes the company would be able to rebound once stores closed by the covid-19 outbreak could reopen, and so that the retailer would be able to secure better terms in its restructuring negotiations than the typical Chapter 11 debtor.
The company has struggled for years, but analysts generally expected before the pandemic that it could hold out until at least 2021.
Some of the letters also criticize the decisions of the company’s management and claim that Chief Executive Jill Soltau offered false hope to investors. The company maintained in public statements through the end of March that it remained “optimistic about JC Penney’s ability to weather this pandemic.”
“I saw no bankruptcy coming, only the promise of a turnaround and good news,” wrote shareholder David Dean of Baltimore, who submitted a letter to the court on June 3. “Now this filing for bankruptcy. Who would have known.”