• J.C. Penney Liquidation

    J.C. Penney Lawyer Says Liquidation 'Not in the Cards' as Three Bidders Vie for Brand

    Deal Could Close by Fall for Department Store Chain's Retail Operations

    J.C. Penney is in the process of consolidating its store footprint in the United States and Puerto Rico. (iStock)
    J.C. Penney is in the process of consolidating its store footprint in the United States and Puerto Rico. (iStock)

    Department store chain J.C. Penney's retail business is expected to keep operating under its brand name after a sale as early as this fall as three bidders vie for the operating company, said a lawyer representing the chain in its Chapter 11 bankruptcy.

    In a hearing Wednesday, Joshua Sussberg, a Kirkland & Ellis attorney representing J.C. Penney, told the U.S. Bankruptcy Court for the Southern District of Texas in Corpus Christi there's been no discussion tied to liquidation of the retailer among three potential bids and liquidation is "simply not in the cards." Instead, he said, the three separate bids under consideration are not only for some of J.C. Penney's real estate, but its brand to keep its retail business running. Back in May, the company had 846 stores in the U.S. and Puerto Rico.

    Sussberg declined to disclose the bidders, calling those bids confidential ahead of a Friday deadline given to lenders to approve a business plan presented by the retailer earlier this month.

    If all goes well, the 118-year-old department store retailer could put together an asset purchase agreement and line up a stalking horse bidder as early as August, with a potential deal closing as early as this fall.

    In the hearing, Sussberg addressed a New York Post article published this week, calling the report "untrue" and "ill-informed." The report, citing an undisclosed source, claimed Sycamore Partners, one of the long-rumored potential bidders for J.C. Penney's business, might be considering merging the J.C. Penney business with struggling department chain Belks in a deal totaling $1.75 billion. A spokesman with Sycamore Partners declined to comment on the speculation. J.C. Penney declined to comment on the speculation beyond what the company's attorney said in the court hearing.

    J.C. Penney is continuing to negotiate with landlords, even after resuming making delayed rent payments earlier this month. The retailer has also announced earlier it plans to lay off 1,000 corporate and management employees to reflect its shrinking retail footprint, which is expected to decline 29% to 600 stores in the next two years.

    J.C. Penney sent a Workers Adjustment and Retraining Notification letter to the Texas Workforce Commission alerting the state it planned to lay off 717 of its corporate employees at its headquarters in Plano, Texas, with a last pay period in mid-September. According to the letter, this would take the retailer's corporate workforce to 1,800 remaining employees.

    In mid-May, when J.C. Penney filed for bankruptcy protection after months of government-mandated store closings tied to the COVID-19 pandemic, the retailer had the 846 stores in the United States and Puerto Rico. Currently, the retailer is in the process of permanently closing 152 stores, including its high-profile store in Manhattan, after back-and-forth negotiations with landlords. J.C. Penney has also received the nod from the bankruptcy court judge to exit two distribution hub leases in California and Utah.

    In Texas, the retailer is still negotiating with its corporate landlord on its 1.1 million-square-foot headquarters lease. Sam Ware, a partner at Dreien Opportunity Partners, an affiliate of the limited partnership that owns The Campus at Legacy West, said talks are ongoing, but he's "very close to working out a deal," with J.C. Penney.

    Like J.C. Penney's shrinking corporate workforce, the headquarters is expected to reflect J.C. Penney's plans for a smaller number of stores. Ware said a renegotiated corporate lease may take some input from would-be bidders on the going-forward retail business.

    J.C. Penney's property holding company is expected to own undisclosed portions of the retailer's real estate as it's lined up and ready to go, Sussberg told the court during the hearing. Both the retail operating company and the property holding company are expected to own some of J.C. Penney's real estate, with its owned real estate totaling 387 stores, including 110 stores located on ground leases. The retailer also owns six of its nine regional distribution facilities.

    The retailer parted with one of its more significant real estate assets years ago, selling its headquarters, as well as 45 acres of land that can be developed, in a deal totaling $353 million that closed in December 2016. Since then, the landlord has revamped the single tenant building and transformed it into a multi-tenant corporate campus and has been looking for other corporate tenants.

    Meanwhile, Bob Young, an executive managing director for Dallas-based Weitzman, who has been tracking the J.C. Penney bankruptcy, said he wasn't surprised to hear J.C. Penney's brand was expected to continue on with a new buyer.

    "I never thought it would turn into a liquidation, there's just too much value there," Young said, in an interview. "The Penney's brand has a lot of good will and value I could see people trying to leverage into a new business model that makes sense."