J.C. Penney filed for bankruptcy Friday evening after weeks of rumored speculation and crushing store closures.
The department store company is now under bankruptcy court supervision after entering into a restructuring support agreement with some of its lenders and securing debtor-in-possession financing that requires the retailer to see if it can attract a buyer.
JCP, which filed the voluntary Chapter 11 in a federal bankruptcy in Corpus Christi, Texas, said the new restructuring agreement has garnered support from 70 percent of its lenders who hold first lien debt, and provides for a pre-arranged financial restructuring plan that is expected to reduce several billion dollars of indebtedness.
The company said it has $500 million in cash on hand, and has received commitments for $900 million in DIP financings, including $450 million of new money, from existing first lien lenders. The retailer said it believes the financing, along with cash flow generated from ongoing operations, will sufficient to meet its operational and restructuring needs. The financing commitment from lenders also requires the retailer to “explore additional opportunities to maximize value, including a third-party sale process,” the company said.
JCP was already languishing before the coronavirus pandemic shut down stores nationwide in mid-March. With store revenue suddenly choked off, the retailer’s debt problems quickly piled up and the chain could no longer prolong the inevitable.
“Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy—and our efforts had already begun to pay off,” CEO Jill Soltau said. “While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review of include the elimination of outstanding debt.”
Implementing the new financial restructuring plan under a court-supervised process “is the best path to ensure that JCPenney will build on its over 100-year history to serve our customers for decades to come,” Soltau added. The plan has gained “widespread support” from the retailer’s asset-based lenders and first-lien lenders, and she noted support from vendors, landlords and other stakeholders. The CEO believes JCP will emerge from Chapter 11 and the pandemic “as a stronger retailer.”
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While the courts sort out the legal wrangling, JCP’s online business remains open for business while stores resume selling where states and municipalities allow. Similar to what other retailers have done, JCP’s reopened stores offer contact-free curbside pickup. While the company didn’t reveal how many stores it plans to close in the bankruptcy proceedings, it is expected to eliminate as many as 200 doors, and possibly more and the restructuring could help JCP speed up its store rationalization strategy. Stores on the chopping block will close in phases throughout the bankruptcy process, with more information on the first phase of closures coming in the next few weeks, the retailer said.
Before the pandemic hit, JCP pointed out that it met or exceeded guidance on all five financial objectives for 2019 and “saw comparable store sales improvement in six of eight merchandise divisions in the second half of 2019 over the first half.”