J.C. Penney Bankruptcy Plan Would Spin Properties Into REIT

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(Bloomberg) -- J.C. Penney Co.’s plan to slash billions of dollars in debt and emerge from bankruptcy court includes a proposal to create two new publicly traded entities, including a real estate investment trust that would hold some of the retailer’s property.

The company’s tentative bankruptcy plan calls for creating both a new operating company and a REIT that would collect rent from a subset of J.C. Penney stores, court papers show. J.C. Penney can, with its first-lien lenders’ permission, sell up to a 35% stake in the new REIT to generate cash.

J.C. Penney filed for Chapter 11 bankruptcy Friday, allowing it to stay in business while it works out how to pay its bills. While the sudden shock from the coronavirus outbreak ultimately undid J.C. Penney, the company -- a mainstay of American shopping malls -- has struggled for years to keep customers from defecting and ease its multibillion-dollar debt load.

The retailer would seek to list shares of the new operating company and the REIT on a national securities exchange “as soon as reasonably practicable” after its proposed plan takes effect, according to court documents. J.C. Penney would also try sell its distribution centers under the plan.

The proposal is “predicated on speed -- it is not an option to languish in Chapter 11,” Chief Financial Officer Bill Wafford said in a court declaration, adding the retailer needs to complete a restructuring deal before the holiday shopping season. “Failure in these efforts is not an option, with nearly 85,000 associates depending on the right outcome here.”

But the REIT arrangement could be abandoned. If J.C. Penney and its first-lien lenders don’t agree on a new business plan by July 14, or if the requisite funding isn’t obtained by Aug. 15, the company would instead sell all its assets unless the lenders say otherwise.

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The plan, part of the Chapter 11 filing in Corpus Christi, Texas, would allow the company to shed billions in debt that has weighed it down for years. Some of the chain’s stores will be closed permanently as part of the bankruptcy, with locations to be disclosed in the coming weeks, J.C. Penney said in a statement.

About 70% of the company’s first-lien lenders support the restructuring proposal, according to the statement. Those lenders are providing a $900 million bankruptcy financing package that includes $450 million of fresh cash. The financing needs court approval.

The case is J.C. Penney Company Inc., 20-20182, U.S. Bankruptcy Court for the Southern District of Texas (Corpus Christi).

©2020 Bloomberg L.P.

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