JCP J C Penney Company Inc

By Andrew Scurria 

The clock is ticking for J.C. Penney Co., which is racing to settle with creditors quickly enough to convince them it can once again make money selling clothing, cosmetics and cookware to another generation of Americans.

After filing for chapter 11 protection Friday, Penney appeared on Saturday in the U.S. Bankruptcy Court in Corpus Christi, Texas, where the department-store chain hopes to slash its debt, spin off a real-estate division and position itself to welcome back shoppers as many states loosen their stay-at-home restrictions.

The longer Penney stays mired in bankruptcy, the less likely it will emerge from chapter 11 as a continuing business, according to lawyers representing the company and its lenders. Retailers and supermarkets that file for bankruptcy are more likely than other types of companies to simply liquidate rather than restructure as viable businesses.

Penney has taken steps to avoid that fate, negotiating for as much as $900 million in bankruptcy financing to keep itself afloat and setting an aggressive restructuring timetable, the company's bankruptcy lawyer Joshua Sussberg said at the hearing. Half of the proposed financing, which requires court approval, would provide fresh capital, while the other half pays down existing debt.

"This company needs to move incredibly quickly through this restructuring," Mr. Sussberg said. "If we don't, the results could be disastrous."

Judge David Jones, who is overseeing the bankruptcy, said he was concerned the timetable wasn't quick enough and asked to "keep everyone's eyes focused on saving the business."

Government restrictions meant to slow the spread of coronavirus have choked off Penney's revenues, accelerating a long decline marked by the company's missteps as shoppers' habits changed. It is the largest in a parade of retailers to seek protection from creditors during the coronavirus pandemic, joining Neiman Marcus Group Ltd., J.Crew Group Inc. and Stage Stores Inc. in filing for bankruptcy this month.

Penney wants to spin off its real-estate holdings into a public trust, separate from the retail operations, Mr. Sussberg said. The company hasn't said how many of its nearly 850 department stores will close during the chapter 11 process, or how many of the 85,000 rank-and-file employees could lose their jobs.

A reorganization that preserves Penney's core business will maximize the company's value, said Dennis Dunne, a lawyer for some of the company's senior lenders. Penney's sales, which totaled $10.7 billion in the most recent fiscal year, have fallen each year since 2015, and the company hasn't made an annual profit in nearly a decade. Mr. Sussberg said Penney would also market its business to potential buyers.

Saving a retail chain with a business model in decline is difficult, even under normal economic conditions. Retailers have difficulty shrinking themselves back to health and are more likely than other types of companies to be dismantled through bankruptcy. To emerge from chapter 11, creditors have to be convinced the business is a worthwhile investment, worth more alive than dead.

While bankruptcy laws are designed to turn around indebted companies, nearly half of the more than 50 retailers and supermarkets that have filed for chapter 11 over the past 15 years closed all their stores and went out of business for good, according to Fitch Ratings research. They include Toys "R" Us Inc. and Barneys New York Inc., which both filed for chapter 11 hoping to reorganize but wound up in liquidation.

Roughly 70% of Penney's first-lien lenders have signed on to support a restructuring framework that would hand them a controlling stake in the company, subject to court approval. Their lawyer, Mr. Dunne, said they "committed real capital to provide the company with some breathing room."

"A lot has to happen and a lot has to go right," Mr. Dunne said. "We do think there is a path for renewal and reorganization, but the hard work starts now."

Top lenders to the company include H/2 Capital Partners LLC, Sixth Street Partners and the credit-investing arms of KKR & Co. and Ares Management Corp.

Other creditors aren't on board. Kris Hansen, a lawyer for a group of dissident creditors, said his clients were shut out of negotiations and criticized the company for paying out $10 million in retention bonuses to top executives, a $45 million financing fee to lenders and $17 million in loan interest in the week before filing for bankruptcy.

With nonessential shopping nationwide still largely shut down, the company said it has opened seven stores for curbside service and 41 stores for full operation.

Write to Andrew Scurria at Andrew.Scurria@wsj.com

(END) Dow Jones Newswires

May 16, 2020 21:36 ET (01:36 GMT)

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