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Law360 (May 15, 2020, 6:46 PM EDT) -- Legendary department store chain J.C. Penney Co. filed for Chapter 11 protection late Friday in Texas following weeks of rumors about the retailer's finances after the COVID-19 pandemic forced it to close down all 850 of its stores, eliminating most of its revenue.
The J.C. Penney department store chain filed for bankruptcy Friday, blaming the COVID-19 pandemic. (AP Photo/Alan Diaz)
The retail giant, which has struggled in recent years, said in a statement announcing its bankruptcy filing that out-of-court reorganization efforts had been gaining steam but that the COVID-19 pandemic torpedoed any progress the company had made.
"Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy — and our efforts had already begun to pay off," J.C. Penney CEO Jill Soltau said in the statement Friday evening. "While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt."
J.C. Penney comes into court with a plan in hand to wipe away several billion dollars of debt, including a restructuring support agreement with holders of about 70% of its first-lien debt, according to the statement.
To fund its trip through Chapter 11, J.C. Penney has obtained $900 million in debtor-in-possession financing from existing first-lien lenders, which, combined with its $500 million in current cash on hand, should be enough to meet the company's funding needs in bankruptcy, the statement said.
A slate of first-day motions were expected to be filed seeking permission to pay the wages of the employees who haven't been furloughed due to store closures as well as benefits for all of its employees, the company said. It will also ask to pay vendors in the ordinary course of business while the company is in bankruptcy.
While it is pursuing a balance sheet restructuring, the company said on its website that its DIP commitments require J.C. Penney to explore a potential third-party sale process in order to maximize the value of its assets.
Prior to the bankruptcy, the company was enacting a store optimization plan to reduce its brick-and-mortar footprint in an effort to increase revenue and reduce costs. The plan called for the closure of some stores, and J.C. Penney now says the bankruptcy will allow it to accelerate those planned closures. While details about the number of stores slated to close were not immediately available Friday, the company's statement said a first phase of closures would begin in the coming weeks.
A first-day hearing on the initial case motions had not yet been scheduled by Friday evening, but the case has been assigned to U.S. Bankruptcy Judge David R. Jones.
Founded in 1902 by James Cash Penney, the company opened its first store in Kemmerer, Wyoming, under the name The Golden Rule. According to the company, it generated more than $10 billion in net sales in 2019, down more than 8% from the previous year.
The company joins other significant retailers that have filed for bankruptcy protection in the wake of the pandemic, including clothing seller J.Crew and luxury brand retailer Neiman Marcus.
The retail sector has been struggling for the last few years, with many smaller stores falling into insolvency due to a combination of increased competition, the rise of e-commerce options and increasing costs to operate brick-and-mortar stores as customer foot traffic falls. These difficulties were exacerbated by business restrictions due to the COVID-19 pandemic.
The company is represented by Joshua A. Sussberg, Christopher J. Marcus, Aparna Yenamandra, Rebecca Blake Chaikin, Allyson Smith Weinhouse and Jake William Gordon of Kirkland & Ellis LLP and Matthew D. Cavenaugh, Jennifer F. Wertz, Kristhy M. Peguero and Veronica A. Polnick of Jackson Walker LLP.
The case is In re: JC Penney Company Inc., case number 20-20182, in the U.S. Bankruptcy Court for the Southern District of Texas.
--Editing by Alanna Weissman.
Update: This story has been updated with additional information about J.C. Penney's bankruptcy filing.
For a reprint of this article, please contact reprints@law360.com.
