JCPenney’s Lenders Could Take Over the Department Store as Sale Talks Hit a ‘Stalemate’

Time is running out to save J. C. Penney Company Inc.

The bankrupt retailer’s discussions with landlords have reached an impasse, leaving JCPenney’s top lenders to put together their own proposal to take over the business.

“We’ve hit a stalemate,” JCP attorney Joshua Sussberg of Kirkland & Ellis said at a hearing on Monday in the United States Bankruptcy Court of the Southern District of Texas. “Our lenders are no longer going to be held hostage in negotiations with third parties.”

He added, “While it is possible that one of the bidders comes back into the transaction, we can no longer stand idly by and allow for negotiating postures to stand in the way of 70,000 jobs and our vendor base.”

Although it will continue to explore outside bids, the department store will now work with financiers — including H/2 Capital Partners, Silver Point Capital, Brigade Capital Management and Sculptor Capital Management — to negotiate a debt-for-equity swap.

The deadline for an agreement is on Sept. 10, while the goal is for a transaction to be completed within 30 days. A lawyer for the lenders, Andrew Leblanc of Milbank LLP, said that there were “lots of hurdles” to reach a deal and that negotiating an agreement over a short period of time is a “heavy lift.”

Sussberg did not name the bidders; however, he said that JCPenney was in “advanced” talks with a property owner that houses more than 160 of the Plano, Texas-based chain’s locations. Multiple reports have suggested that this is Simon Property Group, the largest mall owner in the U.S. Fellow commercial real estate landlord Brookfield Property Partners is reportedly partnering with Simon, while Saks Fifth Avenue parent Hudson’s Bay Company and private equity firm Sycamore Partners were also said to be in the bidding mix.

After struggling for several years amid declining sales, numerous leadership changes and increased digital competition, JCPenney filed for Chapter 11 protection on May 15. It obtained $900 million in debtor-in-possession financing to aid operations and expects to close 242 doors, or about 29% of its fleet, by February. On Sunday, a court filing showed that its net loss for the month ended July 20 was $342.1 million, while revenues were $564.3 million, compared with an income of $46.2 million and sales of $621.7 million for June.

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