J.C. Penney is one step closer to wrapping up a protracted bankruptcy case.
The mass merchant finally signed an asset purchase agreement with the majority of its debtor-in-possession and first-lien lenders and its two largest landlords, Brookfield Asset Management and Simon Property Group, paving the way to complete a sale by early December.
“Signing a definitive [asset purchase agreement] with Brookfield, Simon and our Majority First Lien Lenders allows us to move forward towards the completion of our financial restructuring—and we are looking forward to operating under new ownership outside Chapter 11 in advance of the 2020 holiday season,” JCP CEO Jill Soltau said. “Our team remains laser focused on implementing our Plan for Renewal to offer compelling merchandise, drive traffic, deliver an engaging experience, fuel growth and build a results-minded culture.”
Converting the draft into a completed, final agreement ends a nail-biting few weeks when it was unclear whether the lenders and two landlords would be able to reach an agreement on a Master Lease. That worry ended over the weekend when they leaned on mediation to resolve those differences. Still, there were a few loose ends to tie up on language in the sale agreement, and finalizing a signed version of the sale contract allowed JCP attorney Joshua Sussberg of Kirkland & Ellis to keep his promise to Bankruptcy Judge David Jones that the document would be filed before Monday’s sale hearing.
As planned, the PropCo portion involving JCP real property assets will be split into two real estate investment trusts, comprised of 160 locations for one REIT and six distribution centers for the second REIT, with the lenders owning the two REITs. Brookfield and Simon will acquire JCP’s retail and operating assets, referred to as OpCo. And the two components will enter into master leases for the real property assets.
The agreement still requires Judge Jones’ approval, but JCP is all but certain to avoid liquidation.
The only hiccup could be if the minority group of first-lien lenders, which submitted a competing bid for PropCo, is able to recruit a deep-pocketed player to help it bid for the OpCo component. In that scenario, the case could be delayed by some bickering over which offer is superior. The competing bid is really based on a dispute between lenders over how much they would expect to recover.
And with the signed contract of sale in place, JCP is finally assured of an exit from Chapter 11. That’s good news for the retailer’s more than 60,000 employees, not to mention landlords and vendors.
