Penney’s, which filed for Chapter 11 bankruptcy court protection on May 15, is coming up against a key deadline that requires it to reach an agreement with first-lien lenders to work out a plan to exit bankruptcy as a standalone firm by July 14. Without an agreement, the retailer must secure a buyer to keep the business operating as a going concern—or risk liquidation.
The mass merchant has been holding talks with potential investors as a back-up plan as it also tries to work out a deal with lenders. Earlier this month, Penney’s was said to be in exploratory talks with private equity firm Sycamore Partners, either for a solo investment or jointly with Simon and Brookfield. The two mall operators are also Penney’s landlords, and Simon is on the unsecured creditors committee in the retailer’s bankruptcy case.
A Bloomberg report suggested that ABG would again join forces with Simon and Brookfield in a bid for Penney’s. If that were to happen, it would be the third deal for the parties. ABG CEO Jamie Salter declined comment.
ABG first linked up with Simon and Brookfield to bail out teen retailer Aéropostale from bankruptcy. At the time, the deal was with General Growth Properties, which is now part of Brookfield. And the three partnered up earlier this year to acquire Forever 21, also rescuing the teen fast-fashion chain when it was in the throes of bankruptcy proceedings. The typical arrangement would have ABG own Penney’s intellectual property outright, and the three would work out an arrangement for ownership of the operating business.
A joint bid would make sense as a brand management firm’s focus would be on licensing and it would need an operator to run the day-to-day business. Landlords have an interest in keeping its tenants in place at the malls–particularly in the case of Penney’s, which occupies key anchor locations. Some sources have cited concerns over co-tenancy clauses, which allow tenants to pack it in and exit a mall if there’s a requirement for a certain co-anchor tenant to occupy a space.
Brookfield last month said it will put in place a $5 billion retail-investment fund to help distressed retailers impacted by the coronavirus pandemic. Brookfield CEO Bruce Flatt was quick to note last week that the new funding program was more about “making money for our company” and less about a play to keep its malls afloat.