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Law360 (May 28, 2020, 3:22 PM EDT) -- Retailer J.C. Penney Co. told a Texas bankruptcy judge Thursday it is both putting together a plan to split the company into two entities and testing the waters for a sale as it moves toward a mid-July deadline for choosing which path to take out of Chapter 11.
At a status conference over the phone, counsel for the iconic retail chain said the company is both gauging the interest of potential buyers and putting together a restructuring plan that would split the company into a store-operating and a real estate entity, with the 60th day since its Chapter 11 filing as the deadline to choose one or the other.
"This case needs to move incredibly fast. We intend to move incredibly fast," J.C. Penney counsel Joshua A. Sussberg said.
J.C. Penney filed for bankruptcy May 15, saying it had been undergoing a comprehensive business overhaul for the last two years to deal the general decrease in brick-and-mortar retail sales, and had been putting together an out-of-court restructuring of its $8 billion in debt until the outbreak of COVID-19 doomed those efforts when it was forced to shutter all 850 of its stores and furlough most of its 85,000 employees.
At the conference, Sussberg said the company has experienced some good news on this front. Since the filing, state restrictions have loosened, allowing more than 300 stores in 32 states to return to various degrees of operation, and the company expects 500 to be open by early June, he said. A new curbside pickup program has boosted online sales, and overall sales are now only down 39% from last year, he said.
"The balance sheet is starting to look more like it should pre-COVID," he said.
The company has previously said that it may close as many as 242 stores permanently, and Sussberg said it is still planning on two waves of store closings over the summer.
He said the company is continuing to pursue a two-track approach to the Chapter 11 case, preparing for either a restructuring or a sale on a 60-day timetable.
He said the company has both been drawing up what it thinks is a "value-maximizing" plan to restructure the company into two entities, one to operate stores and the other to hold real estate, and setting up a "market test" to gauge the interest of a wide range of potential buyers.
"We're going to cast a wide net so we can stand up in 60 days and say we did everything we could," he said.
He also said the company has received a debtor-in-possession financing offer from a lender group that complained at the first day hearing that it had been excluded from participating in a $900 million DIP package proposed by a different lender group, and that the company is considering both offers.
J.C. Penney 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.
--Additional reporting by Vince Sullivan and Jeff Montgomery. Editing by Adam LoBelia.
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