J.C. Penney parted with a $17 million interest payment just under the wire on Thursday, but an ominous cloud of uncertainty hangs over the debt-laden chain’s murky future.
The company in a regulatory filing on Friday said it made the payment that was due May 7, and that it entered into the five-day grace period so it could evaluate strategic options, “none of which have been implemented and which continue to be considered.”
One of those options includes possibly filing a Chapter 11 petition for bankruptcy court protection.
The $17 million payment is just half of JCP’s battle, however. The chain skipped a $12 million interest payment that was due on s, electing instead to enter into a 30-day grace period that ends Friday. JCP shares temporarily stopped trading Friday pending news of the interest payment. When trading resumed mid-morning, shares began trading actively as investors tried to digest what the payment might mean.
For now, speculation indicates that bankruptcy filing might not be as imminent as previously thought, as the company in all likelihood would decline to make a payment in order to keep cash on hand to help fund a bankruptcy case.
On the other hand, JCP might have elected to pay noteholders so as not to be in default.
This would be a likely scenario if the retailer was also trying to get their support as it tries to negotiate a possible pre-packaged bankruptcy. JCP is said to be in talks with a number of potential private equity investors, but would need the nod of approval from a majority of its creditor base if it wants to go that route.
The company has also been in talks with lenders for a debtor-in-possession financing facility. Support for a pre-packaged bankruptcy, with creditor support, would in all likelihood give the mass merchant the best chance of exiting bankruptcy as a going concern entity. Keeping the retailer alive would also support the struggling U.S. economy by helping to keep legions of store associates employed, even if it elects to close swathes of stores in the process.