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JCP Settles Minority Lender Dispute. What’s Next?

Bankrupt J.C. Penney is one step closer to wrapping up a sale and exiting  Chapter 11 exit.

The retailer and all constituency groups have resolved a dispute over the amount of recovery the minority group of lenders will receive in the bankruptcy case. Terms of the “global settlement” were not disclosed with the bankruptcy court on Monday, but the court papers on file noted that the settlement was the reason why a sale hearing set for Monday is now delayed by one week. The next hearing is set for Nov. 9.

JCP has a signed agreement between the majority group of first-lien lenders and its two largest landlords, Simon Property Group and Brookfield Asset Management. The agreement calls for the retailer’s real estate assets to be owned by its lenders via two real estate investment trusts, one for 160 stores and the other for JCP’s six distribution centers. The operating assets of the business would be acquired by Simon and Brookfield. This split arrangement has been dubbed PropCo-OpCo.

The sale saw a hiccup when a minority group of first-lien lenders, who charged that they weren’t getting enough of a return on the recovery rate, put in a bid of their own, but only for the real estate assets. Simon and Brookfield weren’t willing to shift gears and negotiate a deal with the minority group of lenders, leaving the latter with the problem of finding a new OpCo partner in just six days.

As it stands, the expectation is that there won’t be any recovery for creditors holding unsecured claims.

JCP, Simon, Brookfield and the majority lender group are still in the process of finalizing the Master Lease Agreement, according to a court document filed on Monday with the bankruptcy court.

With the dispute between lenders resolved, and presuming bankruptcy court approval of the sale next week, JCP only needs confirmation of its reorganization plan in order to exit Chapter 11. A hearing on the plan is currently set for Nov. 24.