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Bloomberg
JC Penney Co, its stores shut and revenue all but extinguished by the pandemic, is continuing to huddle with creditors about how to avert a default after it skipped an interest payment.
The struggling chain is seeking their agreement for a deal that would keep it out of bankruptcy, according to people familiar with the negotiations.
Management is using a 30-day grace period on the missed $12 million payment as those talks to continue, said the
people, who asked not to be named discussing confidential information.
The talks have exposed a split among the various constituencies about the chain’s fate. Some groups favour a restructuring out of court, while some of the highest-ranked creditors are pushing for a bankruptcy and liquidation, the people said. Notwithstanding that faction’s desire, liquidating the retailer is not currently on the table as part of the negotiations, the people said.
JC 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, as Reuters reported. Such a move would put 90,000 jobs at risk.
The company “has been engaged in discussions with its lenders since mid-2019 to evaluate options to strengthen its balance sheet, a process that has become even more important as our stores have also closed due to the pandemic,†it said in a statement. A representative declined to comment further about the negotiations.
“We think it is improbable that bond or loan holders reach a meaningful agreement to avert a filing in 30 days, and we expect the general tone around discretionary retailing to darken in the coming months,†CreditSights analysts wrote in a note. Their “base assumption†is that the company will sell assets rather than reorganise, and they calculated JC Penney has about four to six months of life left if it doesn’t seek bankruptcy soon.
Going bankrupt and trying to reorganise during a quarantine could be disastrous for retailers, with stores shuttered and revenue slowed to a trickle. But 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. For now, JC Penney has enough cash to maintain itself and avoid a precipitous bankruptcy filing, the people said.
Among retailers weighing bankruptcy, “there could be merit in doing a pre-arranged bankruptcy now while stores are closed†and expenses are lower, said Derek Pitts, head of restructuring at investment bank PJ Solomon Securities LLC.