J.C. Penney Loan Auction Scrapped by H/2 After Bids Fall Short

(Bloomberg) -- H/2 Capital Partners scrapped an auction for J.C. Penney Inc.’s term loan held by the hedge fund after a weak reception from potential buyers, according to people with knowledge of the situation.

Bids for H/2’s sale of about half J.C. Penney’s $1.7 billion term loan didn’t meet the seller’s minimum price by Thursday’s deadline, said the people, who asked not to be identified discussing the private auction. The hedge fund will continue to own its portion of the term loan, and no further auction is scheduled at this time, the people said.

Deutsche Bank AG was shopping J.C. Penney’s first-lien term loan due in 2023 on behalf of H/2 Capital. The loan was quoted recently around 88 cents on the dollar, according to data compiled by Bloomberg.

Representatives for Deutsche Bank and J.C. Penney, based in Plano, Texas, declined to comment. Stamford, Connecticut-based H/2 didn’t return messages seeking comment.

Debt investors have balked at putting new money into traditional retailers as shoppers defect to online merchants, a trend that helped pushed chains such as Sears Holdings Corp. and Forever 21 Inc. into bankruptcy.

H/2’s sale wouldn’t have affected J.C. Penney’s balance sheet or operations, but it was large enough to spook bondholders and traders of credit-default swaps when news of the sale began to circulate.

Back in August, S&P Global Ratings cut J.C. Penney to CCC, noting that while the company doesn’t plan to file for bankruptcy, “we think an out-of-court restructuring is increasingly likely.” The following month, Bloomberg reported the chain was preparing for talks with its creditors about easing its debt burden.

To contact the reporter on this story: Katherine Doherty in New York at kdoherty23@bloomberg.net

To contact the editors responsible for this story: Rick Green at rgreen18@bloomberg.net, Nicole Bullock

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