• Retail Dive

J.C. Penney operations are out of Ch. 11 with Simon-Brookfield deal closed


Ben Unglesbee@Ben_Unglesbee


Dec. 8, 2020

Dive Brief:

  • J.C. Penney has closed its deal with mall landlords Simon Property Group and Brookfield Asset Management to buy the bankrupt department store chain's operations, according to a press release emailed to Retail Dive.

  • With the deal finalized, the new entity formed from Penney's operations has exited Chapter 11.

  • J.C. Penney leaves bankruptcy with $1.5 billion in new debt financing, which includes an asset-based facility led by Wells Fargo.

Dive Insight:

J.C. Penney's deal to sell itself to Simon and Brookfield was hard-won and likely saved it from retail oblivion.

That's according to attorneys and consultants for Penney, who have said at multiple hearings that without a deal, the retailer wouldn't have been able to pay down a bankruptcy loan as it came to maturity. Put simply, by this fall Penney's options were to be sold or to liquidate.

Not everyone agreed with that assessment. A group of shareholders waged a largely futile campaign throughout the bankruptcy process to both block the bankruptcy loan as well as Penney's sale. A federal judge in November denied a last-minute request by shareholders to block the deal, removing one of the final potential obstacles to closing.

Prior to approval of the deal in bankruptcy court, Penney had missed numerous deadlines as it tried to bring the acquisition agreement to the finish line. There was mediation with other secured lenders, arguments, "screaming matches." There were also other interested parties in Penney, including private equity firm Sycamore Partners and retailer Hudson's Bay Company (owners of Saks Fifth Avenue).

But neither of the latter parties were willing to put up cash to actually own Penney. Rather, they offered to run the operations for lenders, should they take over the company in a reorganization, according to a consultant for Penney. Only Simon and Brookfield were willing to put up enough capital to satisfy secured lenders at the top of the retailer's capital structure.

The deal keeps intact more than 600 stores and 60,000 jobs. It also spins off a new entity, owned by secured lenders and composed of some 160 properties previously owned by Penney, that now the retailer must pay rent on.

By buying Penney's operations, Simon and Brookfield can keep a major anchor from disappearing from many of their malls, as well as preserve tenants who could have left via co-tenancy clauses in their leases pegged to Penney's presence in malls.

All that said, Simon and Brookfield have a major retail turnaround project on their hands. J.C. Penney's profit losses, as well as sales and traffic declines, have followed it throughout bankruptcy and a year made incredibly tough on department stores by the COVID-19 pandemic. Moreover, the long fight to secure an acquisition deal also took its toll as wary suppliers held back product while waiting to know Penney's future. That, in turn, exacerbated sales losses going into the crucial holiday season.

Nevertheless, the closing of the deal is a major win for Penney, at least in the near term. It means the chain can focus wholly again on its strategic plan and the business of retailing, rather than bankruptcy and deal talks.

In a statement, David Simon, Chairman and CEO of Simon Property Group, said of his new acquisition that "[w]e have always been firm believers in JCPenney, and are very pleased to help preserve this iconic institution."

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