JCPenney entered into a restructuring support agreement with lenders holding approximately 70% of its first lien debt to reduce the company’s outstanding indebtedness and strengthen its financial position.
The agreement contemplates agreed-upon terms for a pre-arranged financial restructuring plan that is expected to reduce several billion dollars of indebtedness, provide increased financial flexibility to help navigate through the COVID-19 pandemic and better position JCPenney for the long-term. To implement the plan, JCPenney filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas.
Kirkland & Ellis is serving as legal advisor, Lazard is serving as financial advisor and AlixPartners is serving as restructuring advisor to JCPenney.
The company received approvals from the bankruptcy court for the “first day” motions related to the company’s voluntary Chapter 11 petitions, including approval for the company to access and use its approximately $500 million in cash collateral.
Among other things, the court authorized JCPenney to continue paying non-furloughed associate wages, provide certain benefits to all associates and to pay vendor partners in the ordinary course for all goods and services provided on or after the Chapter 11 filing date.
“We are pleased to have received approval of these motions, which will enable us to continue implementing our plan for renewal and operating our business to serve the needs of our loyal customers,” Jill Soltau, CEO of JCPenney, said. “We thank the court for convening on a weekend to ensure that JCPenney can hit the ground running on Monday with approval of our first day motions, and we are appreciative of the widespread support we have received from our asset-based lenders and first lien lenders and noteholders as we manage through the current environment. By entering this restructuring support agreement with our lenders, we expect to reduce several billion dollars of indebtedness, provide increased financial flexibility to help navigate through the coronavirus (COVID-19) pandemic and better position JCPenney for the long-term.”
JCPenney has approximately $500 million in cash on hand as of the Chapter 11 filing date. The company will seek authorization at its second day hearing to access the $900 million in debtor-in-possession financing that it received from its existing first lien lenders, which includes $450 million of new money. Following court approval, this financing, combined with cash flow generated by the company’s ongoing operations, is expected to be sufficient to meet JCPenney’s operational and restructuring needs. As part of the DIP commitment from its existing lenders, JCPenney will explore additional opportunities to maximize value, including a third-party sale process.
JCPenney is an apparel and home retailer.
