J. C. Penney Company, Inc. (NYSE: JCP) today announced that it has entered into a restructuring support agreement (the “RSA”) with lenders holding approximately 70% of JCPenney’s first lien debt to reduce the Company’s outstanding indebtedness and strengthen its financial position. The RSA contemplates agreed-upon terms for a pre-arranged financial restructuring plan (the “Plan”) that is expected to reduce several billion dollars of indebtedness, provide increased financial flexibility to help navigate through the Coronavirus (COVID-19) pandemic, and better position JCPenney for the long-term. To implement the Plan, the Company today filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas, in Corpus Christi, TX (the “Court”).
During this process, JCPenney will continue to be one of the nation’s largest apparel and home retailers with an expansive footprint of hundreds of stores across the U.S. and Puerto Rico and a powerful eCommerce site, jcp.com. JCPenney is welcoming customers back to select stores and continuing to offer its Contact-free curbside pickup service at all open stores. At the same time, JCPenney’s eCommerce distribution centers continue to fulfill online orders and customer care centers are answering inquiries as usual. The health and safety of associates, customers, and communities remains a top priority, and the Company is gradually reopening stores and offices in a phased approach while following guidance from local and state orders.
“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 Jill Soltau, chief executive officer of JCPenney.
Ms. Soltau continued, “Implementing this financial restructuring plan through a court-supervised process is the best path to ensure that JCPenney will build on its over 100-year history to serve our customers for decades to come. We believe the RSA and the widespread support we have received from our asset-based lenders and first lien lenders will allow us to pursue a financial restructuring on an expedited timeframe. We are also encouraged by the level of support we have received from our vendor partners, landlords, and other stakeholders, whose confidence in our business and our people is expected to contribute to a successful reorganization.”
“We have a newly refreshed, highly experienced team of retail executives who remain focused on rebuilding our business and restoring financial strength to JCPenney. This team has continued to innovate even during these challenging times, implementing substantial improvements to our flagship eCommerce platform to increase efficiency and ensure our loyal customers continue to have access to the products they need through elevated shopping experiences. I would also like to thank all of our outstanding associates for their continued dedication to our company and their passion for meeting and exceeding our customers’ expectations. We are continuing to serve our customers as we move through this process with a commitment to working seamlessly with our vendor partners and landlords. We look forward to emerging from both Chapter 11 and this pandemic as a stronger retailer, continuing to implement our Plan for Renewal, and building capabilities focused on satisfying customers’ wants and needs,” Soltau concluded.
JCPenney’s Transformation Strategy
JCPenney has been successfully implementing its Plan for Renewal transformation strategy to improve gross margin, reduce inventory, eliminate inefficient spending, and design an engaging, inspiring shopping experience. Specifically, JCPenney has made foundational improvements to:
- Offer Compelling Merchandise
- Drive Traffic
- Deliver an Engaging Experience
- Fuel Growth
- Build a Results-Minded Culture
While the challenging market conditions have impacted the Company’s ability to meet its current operational and financial objectives, the Company remains focused on returning JCPenney to sustainable, profitable growth by reestablishing the fundamentals of retail, re-envisioning its merchandise offerings, and rolling out new innovations. The Company will continue to gather customer feedback and make improvements that enhance the shopping experience throughout this difficult time and over the long-term. Prior to the unprecedented Coronavirus (COVID-19) pandemic, the Company had made meaningful progress on its Plan for Renewal and successfully met or exceeded guidance on all five financial objectives for 2019 and saw comparable store sales improvement in six of eight merchandise divisions in the second half of 2019 over the first half.
Financing and Ongoing Operations
JCPenney has approximately $500 million in cash on hand as of the Chapter 11 filing date. JCPenney has received commitments for $900 million in debtor-in-possession (“DIP”) financing from its existing first lien lenders, which includes $450 million of new money. Following Court approval, this financing, combined with cash flow generated by the Company’s ongoing operations, is expected to be sufficient to meet JCPenney’s operational and restructuring needs. As part of the DIP commitment from its existing lenders, JCPenney will explore additional opportunities to maximize value, including a third-party sale process.
JCPenney will file a number of customary first day motions with the U.S. Bankruptcy Court seeking authorization to support its operations during the financial restructuring process, including authority to pay non-furloughed associate wages, provide certain benefits to all associates, and to pay vendor partners in the ordinary course for all goods and services provided on or after the Chapter 11 filing date.
Store Optimization
Implementing the financial restructuring will allow JCPenney to accelerate its store optimization strategy. As part of its ongoing transformation, JCPenney will reduce its store footprint to better align its business with the current operating environment. Stores will close in phases throughout the Chapter 11 process – and the first phase of closures, including specific store details and timing, will be disclosed in the coming weeks.
