J.C. Penney’s Chapter 11 exit plan could be facing a fresh new hurdle.
A first-lien minority group is to bifurcate the sale process, with the operating component of the sale taking place on Nov. 2 while the sale of the real estate assets will happen on Nov. 24. The current schedule has the Nov. 2 sale hearing for the entire company and a confirmation hearing on the plan of reorganization and disclosure statement on Nov. 24. A bifurcated sale structure would push back the confirmation hearing by at least a week or two, with an exit date a week or so after.
A spokeswoman for the retailer declined comment.
The minority group has put in a $750 million bid for the bankruptcy’s real estate assets, according to court records. The group has indicated that the bid will provide nearly $600 million more in value to the JCP estate than the proposed plan from first-lien lenders that include H/2 Capital Partners, which provided the retailer with debtor-in-possession financing (DIP) for its bankruptcy case.
The group doesn’t have any objection with the planned sale of the operating component to the retailer’s two largest landlords, Simon Property Group and Brookfield Capital Management, a move that it said in court papers would save 60,000 jobs and help repay the DIP facility in full.
The problem has always been an issue of how many millions the minority group stands to recoup.
In the court document filed on Friday, the Aurelius Capital Management-led minority group said its deal would give the DIP lenders a 100 percent recovery at $900 million. The Aurelius-led group would also see a 46.1 percent recovery rate of the mass merchant’s $1.57 billion of first-lien debt. That’s in contrast with the proposed plan, which would give the DIP lenders a 162.4 percent recovery—which the Aurelius-led group charged far exceeds their entitlements under the Bankruptcy Code—and just a 10.3 percent recovery rate to the minority lending group.
The competing offer isn’t the only sticking point to JCP’s plan to exit Chapter 11. The retailer and the parties to the offer that includes the two landlords and the majority group of first-lien lenders still have to finalize a master lease agreement. According to a court document, mediation helped to resolve the lease agreement issues and the finalized form of that document is expected to be filed on or before Nov. 1. Those disagreements have been the stumbling block to converting a draft asset purchase agreement into a final, completely executed document. The parties plan a status conference hearing Monday afternoon.
