Bankrupt J. C. Penney is closing two New York City stores and has put together a business plan—a key milestone in its Chapter 11 court case.
In court Wednesday, Penney’s attorney Joshua Sussberg of Kirkland & Ellis said the retailer is pushing for an extension of the July 14 deadline by which is must secure first-lien lender approval of its business plan, which has been delivered to all stakeholders including lenders and creditors.
Sussberg told bankruptcy Judge David Jones that “nobody” wants to see Penney’s—which is closing two stores in Midtown Manhattan and Brooklyn’s King Plaza Mall—liquidate. Restructuring is the preferred outcome, and Sussberg told the judge that lender conversations have been “incredibly productive,” noting that a deadline extension could help Penney’s avoid being backed into a liquidation corner.
The developments and potential resolution should be “viewed as a complete positive for all parties,” including vendors and trade creditors, Sussberg said.
In another development, Penney’s had until July 13 to begin paying rent bills it has deferred, but will begin settling up on Thursday. Lawyers for Penney’s said the retailer has been segregating cash from store closing sales so it can satisfy its rent obligations.
Penney’s will have much lower rental overhead after its closes 242 locations to trim its fleet to 604 doors. It has already begun store-closing sales at 154 locations.
Penney’s last month reported at $546 million first-quarter loss. For the three-month period ended May 2, net sales fell 55.6 percent to $1.08 billion from $2.44 billion.
Of the potential buyers for the company, brand management firm Authentic Brands Group and two mall operators, Simon Property Group and Brookfield Asset Capital, are said to be seriously considering a play for the retailer. The three have worked together in the past in two other similar ventures, Aéropostale and Forever 21. Both retailers were also acquired out of bankruptcy proceedings. In the case of Penney’s, some believe they want to keep Penney’s going as an anchor tenant to prevent other tenants from renegotiating rent or exiting due to co-tenancy clauses.
Regardless of the reason, keeping Penney’s alive means maintaining a channel where product can be sold. Any change, such as a shutdown, could result in a significant loss of jobs for all concerned in the retail sector. It’s the least-desirable outcome of Penney’s bankruptcy and Sussberg told Judge Jones, “nobody wants to see it happen.”