J.C. Penney Co. reportedly is in advanced talks for bankruptcy funding with a group of lenders, a sign the troubled retailer is about to succumb to the economic collapse caused by the coronavirus pandemic.
Penney is in discussions with existing lenders including Wells Fargo & Co., Bank of America Corp. and JPMorgan Chase & Co. for a so-called debtor-in-possession loan that would keep the department-store chain’s operations funded during a court-supervised bankruptcy, people familiar with the matter told the Wall Street Journal.
The loan package could total roughly $800 million to $1 billion, with some of that money potentially including existing debt. The facility would likely be syndicated so that other lenders could participate, the people said, with one cautioning the amount could change.
Last week, Penney (JCP) received an offer for about $300 million in new financing just before it started the clock on a potential bankruptcy filing, people with knowledge of the matter told Bloomberg.
The retailer’s decision to skip a debt payment on April 15 and start a 30-day countdown to default took some of its investors by surprise because the chain had just paid April rent on its stores, the people said.
What’s more, it had cash to make the bond payment, and creditors are interested in providing J.C. Penney with financing out of bankruptcy, they said.
The offer came from creditors who are in a group of first-lien and second-lien lenders that is organized with advisers at Stroock & Stroock & Lavan LLP and Evercore Inc., the people said. The loan would be secured by real estate that J.C. Penney hasn’t already pledged to other debt, said the people. They asked not to be identified discussing confidential matters.
J.C. Penney, led by Chief Executive Officer Jill Soltau, has said it’s considering all options now that the retail shutdown caused by the coronavirus outbreak has upended her plans for a comeback year. Those alternatives could include filing for bankruptcy, putting 90,000 jobs at risk.
The shutdown of the stores makes it impossible for Soltau to act on her turnaround plan for J.C. Penney, which had reported eight straight quarters of falling revenue. Department stores are struggling to adapt to a broad change in consumer preferences -- a trend that will likely be exacerbated by the pandemic.
Going bankrupt and trying to reorganize during a quarantine could be disastrous for retailers, with stores shuttered and revenue slowed to a trickle. But forcing a retailer into liquidation could be equally problematic, because it’s impossible to hold going-out-of-business sales if the chain is shut down, potentially leaving even less money for creditors.
J.C. Penney has nearly 850 stores that have now all gone dark in response to the coronavirus pandemic, and there is no set date for them to reopen. Still, the company isn’t under immediate pressure to file for bankruptcy because it has about $1.6 billion of cash and unencumbered real estate assets, which could be used to secure new debt.
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