June 15, 2021

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J.C. Penney gets more time from lenders in push for survival

An empty parking lot is seen outside a closed JC Penney Co. store in Mt. Juliet, Tennessee, on Thursday, April 16, 2020.

Luke Sharrett | Bloomberg | Getty Images

J.C. Penney announced on Wednesday plans to lay off about a thousand employees.

The announcement comes as the retailer is downsizing its footprint in bankruptcy as it hopes to emerge a stronger, leaner company. J.C. Penney filed for bankruptcy on May 15 with roughly 860 stores and roughly 90,000 full-time and part-time employees. It has announced plans to close about 170 stores in recent weeks, though negotiations with landlords are ongoing. On Wednesday, it said about 152 closures are currently expected. 

On Tuesday, J.C Penney confirmed in a court filing it had struck a deal with its lenders to push back a key deadline originally imposed on it as part of its bankruptcy financing. According to the terms of its debtor-in-possession financing agreement, it had to submit a business plan to its lenders by July 8 and get two-thirds of them on board by July 15. If it missed those deadlines, it would have had to begin the process of selling off its assets. 

Now, after confidentially submitting its business plans on time, J.C. Penney has until July 31 to review them with its lenders and evaluate potential buyers for the business. That gives it about two more weeks to hash out a deal to help it avoid liquidation. 

According to the plans the retailer confidentially submitted last week, it wants to place roughly 160 of its remaining stores into a real estate investment trust to collect checks from the retail business, people familiar with the situation said. Doing so gives investors the chance to invest in a company’s best real estate while keeping its underlying retail business separate.

Penney has said in court documents that it could sell as much as a 35% stake in the newly created REIT to a third-party investor to raise cash, or to provide additional funding for the REIT.

J.C. Penney has been in talks with multiple suitors for all or parts of its business. They include private equity firm Sycamore Partners, which owns department store Belk, and a partnership between Simon Property Group, Brookfield Properties and Barneys New York parent company Authentic Brands, people familiar with the situation have told CNBC

Simon, the biggest mall owner in the country, has a Penney store in about 50% of its U.S. malls, based on one analyst’s analysis. A REIT carve-out would allow Simon to either buy the REIT or invest in the stores that are already in its malls, without having to invest in the retail business. 

Still, the leases in the REIT are a liability for any investor since they are dependent on the ability of the tenants to pay the rent. The REIT that Sears hived off in 2015, Seritage Growth Properties, has fallen more than 74% this year, as investors have worried it may not get enough capital to convert one-time Sears stores into new properties. 

And as the pandemic puts pressure on the real estate and retail industry, shares of Macerich, Simon, CBL and Washington Prime Group, have all tumbled 50% or more this year. CBL is in the midst of talking with its own lenders after missing debt payments and has warned that it may not be able to continue operating. 

The people requested anonymity because the plans are confidential. Spokespeople for J.C. Penney and Sycamore Partners declined to comment. 

Meanwhile, J.C. Penney said employees who are laid off will receive a benefits package that includes severance and health-care coverage for eligible associates. It is also offering compensation for unused paid time off and extended associate discount benefits.

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