US retail giant JC Penney urged to act quickly on bankruptcy
New York — JC Penney needs to exit bankruptcy proceedings in a matter of months to survive the unprecedented financial strain of prolonged store closures due to the Covid-19 pandemic, a lawyer for the US department store chain told a court hearing.
“This company needs to move incredibly quickly through this restructuring. If we don’t, the results could be disastrous,” said Joshua Sussberg, a Kirkland & Ellis LLP lawyer representing the retailer. He unveiled a timeline that foresees the company agreeing to a business plan with lenders by July 15 or else putting itself up for sale.
JC Penney, which filed for bankruptcy on Friday, has started reopening some of its more than 800 stores in stages, but concerns remain that customers might be slow to return amid health concerns and job losses not seen since the Great Depression. It plans to close many stores permanently in the weeks ahead.
Even during less-fraught times, many retailers, including Barneys New York and Toys ‘R’ Us, have failed to reorganise under bankruptcy protection and gone out of business for good.
The concern for JC Penney’s precarious position was echoed by US Bankruptcy Judge David Jones, who approved the company’s requests to continue paying workers and vendors delivering merchandise to stores during a hearing after the retailer’s bankruptcy filing in a federal court in Corpus Christi, Texas.
“You said it’s fast, but fair. I want you to know that at least my looking at it says it’s not fast enough,” Jones said of JC Penney’s plan, encouraging the company to beat its own deadlines.
“I am very worried about this. It’s why I’m having a hearing on a Saturday,” the judge said later. He also approved the company using $500m of its cash on hand.
The judge and a parade of lawyers conducted JC Penney’s Saturday hearing remotely in proceedings that were live-streamed through videoconference technology as courthouses avoid in-person gatherings.
JC Penney, which employs about 85,000 people, envisions handing control to lenders and reducing a significant portion of its nearly $5bn of debt after reorganising into two companies. One would be a company operating its business while the other would be a real estate investment trust holding some of the company's property, plans previously reported by Reuters.
The Plano, Texas-based company reached agreement before its Chapter 11 filing for $450m of fresh financing from existing lenders. Another $450m of debt is to be “rolled up” and given the same legal status as that funding.
JC Penney’s negotiations are set to continue with investment firms holding its senior debt, which include H/2 Capital Partners, Sixth Street Partners, Ares Management Corporation, KKR & Co and Apollo Global Management, among others, Sussberg said.
The company hopes to persuade lenders to support its reorganisation, which will require significant funding, he said. “A lot of that is dependent on performance and unknowns.”
Should the company and its lenders fail to agree on a stand-alone reorganisation, JC Penney will pursue a sale. It is already in talks with possible buyers, Sussberg said.
The company had hoped to give new CEO Jill Soltau, who arrived in late 2018, more time to forge a turnaround by negotiating with creditors for some financial breathing room but those talks did not bear fruit.
JC Penney was struggling before the pandemic with declining sales and profits amid a consumer shift to online shopping, but Sussberg insisted the company had a turnaround plan in place.
Critics pointing to other reasons for the company’s bankruptcy filing are “dead wrong,” he said. “This is absolutely about the coronavirus.”
The judge said the company’s 85,000 employees were counting on lawyers at the hearing. “Retail cases have to move, and they have to move quickly,” he said. “I want to keep everybody’s eyes focused on saving the business. This is middle America, at least in my view.”