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J. C. Penney (JCP) Enters Restructuring Support Agreement

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Shares of J. C. Penney Company, Inc. increased more than 21% during the trading session on May 15. The company, which has been grappling with dwindling revenues, entered into a restructuring support agreement (“RSA”) with lenders holding roughly 70% of its first lien debt to lower outstanding indebtedness. This is expected to reinforce its financial position. The RSA is based on terms for a pre-arranged financial restructuring plan, which is likely to aid the company lower debt and boost financial flexibility amid the coronavirus crisis as well as position the company for long-term growth.
For the implementation of the aforesaid plan, J. C. Penney has filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code. Notably, the company received approvals from the Court for the ‘First Day’ motions with respect to the company’s voluntary Chapter 11 petitions. Also, J. C. Penney obtained approval to access and utilize roughly $500 million in cash collateral. Moreover, the Court has authorized J. C. Penney to continue paying non-furloughed employees’ wages, some benefits to all its associates and pay vendor partners for the goods and services provided on or after the Chapter 11 filing date.

Meanwhile, J. C. Penney is looking to seek authorization at its second day hearing in order to access $900 million in debtor-in-possession (“DIP”) financing. The company received DIP financing from its current first lien lenders. Driven by the DIP commitment from its existing lenders, the company will continue to cash in on opportunities to maximize value, with a third-party sale process.

Meanwhile, J. C. Penney has been gradually reopening stores and offices in phases on local and state guidelines, and continues to provide curbside pickup service across all its open outlets. J. C. Penney had shuttered stores effective Mar 18. Also, its e-commerce distribution centers continue to function.

This Zacks Rank #3 (Hold) company is focused on implementing its Plan for Renewal strategy to drive gross margin, lower inventory, eliminate inefficient costs and improve shopping experience. The company also intends to lower its store count gradually as part of its store optimization strategy. The company informed that stores will be shuttered in phases throughout the Chapter 11 process. Few days ago, J. C. Penney also reaffirmed its 14-year partnership with Sephora. This is likely to maintain the availability of exclusive beauty experience across select J. C. Penney stores, with a curated selection of makeup, skin and haircare brands.

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