J.C. Penney Signs Deal to be Taken Over By Landlords Simon and Brookfield

Chris Chan
AUTHOR|Ben Unglesbee@Ben_Unglesbee
Source: www.retaildive.com, October 2020

UPDATE: Oct. 29, 2020:   J.C. Penney officially signed its agreement with Simon Property Group and Brookfield Asset Management for the mall operators to acquire the department store chain.

Dive Brief:

• J.C. Penney finally has a formal deal on paper with Simon Property Group, Brookfield Asset Management and key lenders that would sell off the department store chain and some 160 real estate assets.
• Along with an asset purchase agreement, Penney filed key documents needed to move its Chapter 11 case through the process, including its disclosure statement and reorganization plan.
• The parties anticipate a court hearing to consider the deal to be scheduled for early November. The company expects to complete the sale of its operations by the December holiday period once the deal is approved, CEO Jill Soltau said in a press release.

Dive Insight:

More than a month has passed since Penney first announced a deal in principle to sell its operations to Brookfield and Simon. In other kinds of court cases, that may be a miniscule increment of time. In a retail bankruptcy, going into the holiday season, it is an agonizingly long period and potentially dangerous to the business.

Attorneys for the retailer said previously that suppliers were withholding product while they waited to make sure that the deal for J.C. Penney actually makes it to the finish line. Representatives for the buyers, lenders and other stakeholders — including the judge overseeing the case — have noted the importance of time and getting Penney through the bankruptcy process as quickly as possible.

Penney and stakeholders have missed deadlines to file key documents while negotiations, which sometimes boiled over into “screaming matches,” took place behind the scenes. Ahead of the blitz of document filings, Penney and major lenders were in mediation under a separate judge, trying to work out kinks in the negotiations, including disagreements over a master lease that was part of the complex deal for Penney and its real estate. That is still being negotiated.

Kirkland & Ellis’s Joshua Sussberg, who is representing Penney in Chapter 11, said in a hearing Tuesday that he is confident the period of missed deadlines is now past. “J.C. Penney’s future is finally secure.”

The deal includes a cash payment of $692 million for the retailer (dubbed “OpCo”) as well as new term debt, and it will leave Penney in the hands of Simon and Brookfield. A separate entity would be created out of 160 Penney real estate assets that would be owned by a group of secured lenders.

Assuming the deal wins court approval and closes, Penney would emerge from Chapter 11 a smaller retailer, but perhaps not as small as could be expected given years of sales declines. In the process of closing 146 stores right now, Penney will soon be left with 690 stores, according to court papers.

When it filed for Chapter 11 in May, the company itself said that it could close up to 242 stores. That it didn’t could reflect who is buying the department store chain — two of its largest landlords who likely are doing so because they don’t want to lose a major anchor in many of their malls.

“It’s a financial deal to conduct a lengthy going out of business sale for J.C. Penney, and J.C. Penney’s not going to survive,” Nick Egelanian, president of retail development firm Siteworks, said in September​. “But this allows the big mall owners to control the death process. And that’s really good for them, because they don’t want these things to close immediately — that’ll cause other closures.”