Another fallen retail giant has walked into the graveyard. And whether it ever leaves — and in what form — is a guess at best.
Debt-laden department store J.C. Penney filed for Chapter 11 bankruptcy protection Friday evening. The filing — expected for the better part of a week — was being held up by hardball negotiating tactics by J.C. Penney’s law firm Kirkland & Ellis, a source familiar with the matter tells Yahoo Finance. A spokesman for Kirkland & Ellis didn’t return Yahoo Finance’s request for comment.
As part of the filing (which J.C. Penney blamed mostly on COVID-19 store closures rather than a decade of mismanagement), J.C. Penney has received debtor-in-possession (DIP) financing of $900 million of which $450 million is new money. J.C. Penney said it believes the new financing and cash generated from the business, is expected to be sufficient to sustain its business and restructuring needs. As part of the financing, J.C. Penney must explore additional opportunities to maximize value, including a third-party sale process.
A source familiar with the situation told Yahoo Finance earlier on Friday that it’s not guaranteed J.C. Penney emerges from bankruptcy, and may opt to liquidate in a bid to satisfy creditors. All options continue to be discussed, the source tells Yahoo Finance.
J.C. Penney hinted at store closures in the bankruptcy filing, but declined to confirm reports it will shutter up to 200 stores. A J.C. Penney spokesperson declined to comment to Yahoo Finance on the number of store closures.
“The Coronavirus (COVID-19) pandemic has created unprecedented challenges for our families, our loved ones, our communities, and our country. As a result, the American retail industry has experienced a profoundly different new reality, requiring JCPenney to make difficult decisions in running our business to protect the safety of our associates and customers and the future of our company. 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. 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,” said J.C. Penney CEO Jill Soltau in a statement.
Soltau was recently paid a $4.5 million bonus, seen by many in the retail space as a retention payment to see the company through the bankruptcy filing. But the optics are terrible. In late March, J.C. Penney announced it would furlough about 85,000 employees in a cash-saving effort with its 860 or so stores remaining closed.
Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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