Amazon is said to be a contender for either all or parts of J.C. Penney, according to an exclusive report by WWD.
“There is an Amazon team in Plano [Tex.] as we speak,” said one source who does business with the online giant, reported WWD. “There is a dialogue and I’m told it has a lot to do with Amazon eager to expand its apparel business — for sure.”
Undone by heavy debt and the closing of its stores amid COVID-19, the long-struggling department store retailer on Friday filed for Chapter 11 bankruptcy protection, saying it would close some stores, with locations and timing to come. Its plans came more into focus in a regulatory filing on Monday in which J.C. Penney said it plans to permanently close about 242 of its 830 locations. The stores to stay open accounted for 82% of the company’s fiscal 2019 sales, the retailer said.
On Saturday — in a hearing unusual in that it was held on a weekend and done by video conferencing — J.C. Penney received approvals from the court to use its approximately $500 million in cash collateral to, among other things, continue paying non-furloughed associate wages, provide certain benefits to all employees, and to pay vendor partners for all goods and services provided on or after the Chapter 11 filing date.
J.C.Penney has secured $900 million bankruptcy financing, which includes $450 million in new money from its fist-lien lenders. The company will likely receive the first half after a June court hearing and the second half on July 15. According to documents filed with the court, if J.C. Penney doesn’t receive the support of two-thirds of its bankruptcy lenders for a business plan by July 15, or binding commitments from third parties to finance those plans by August 15, it must “immediately cease pursuing the plan” and instead pursue a sale of its assets.
“This company needs to move incredibly quickly through this restructuring,” Joshua Sussberg of Kirkland & Ellis LLP (J.C. Penney’s legal advisors) said at the hearing. “If we don’t, the results could be disastrous.”
The concern was echoed by U.S. Bankruptcy Judge David Jones.
“Retail cases have to move, and they have to move quickly,” the judge said. “I want to keep everybody’s eyes focused on saving the business. This is middle America, at least in my view.”
As part of J.C. Penney’s proposal to emerge from Chapter 11, the company would spin off its real estate into a publicly traded real estate investment trust. J.C. Penney would reorganize into a new retailer (“JCP”), along with a REIT that would collect rent checks from the retail business. Court documents say as much as a 35% stake in the newly created REIT could be sold to a third-party investor to raise cash, or to provide additional funding for the REIT. Sussberg said at the hearing that J.C. Penney has “significant unencumbered real property” worth up to $1.4 billion.
In court documents, the retailer said it plans to focus on customer service, apparel and low prices. It will reopen select stores as allowed and offer contact-free curbside pickup service at all open stores. Its e-commerce business, which has remained open during the pandemic, will continue. As of the bankruptcy filing on Friday, seven Penney stores were operating curbside pickup and 41 were fully open for business again.
“We thank the court for convening on a weekend to ensure that JCPenney can hit the ground running on Monday with approval of our First Day motions, and we are appreciative of the widespread support we have received from our asset-based lenders and first lien lenders and noteholders as we manage through the current environment,” said CEO Jill Soltau. “By entering this restructuring support agreement with our lenders, we expect to reduce several billion dollars of indebtedness, provide increased financial flexibility to help navigate through the Coronavirus (COVID-19) pandemic, and better position JCPenney for the long-term.”
In comments, analyst Neil Saunders expressed confidence in Soltau and her team, noting that while progress might have been slow, but the direction she has taken so far – which has focused on customers and their needs – has been correct. But she faces a big challenge in rolling out changes she has brought across the entire chain.
“A wholesale makeover is required to restore the company’s fortunes, said Saunders, managing director of GlobalData Retail. “In normal times, that process of reinvention would be challenging — accomplishing it in the midst and aftermath of a pandemic is more than a tall order.”