J.C. Penney expects to exit bankruptcy ahead of holiday season

J.C. Penney is inching closer to being acquired by mall giants Simon Property Group and Brookfield Asset Management. But a couple of potential roadblocks remain.

The bankrupt retailer said that it has filed a draft asset purchase agreement, a key step to the eventual closing of the deal, which was announced in September.

“This is another important milestone in our restructuring plan, bringing us one step closer to finalizing the APA, closing the sale process and exiting Chapter 11 ahead of the December 2020 holiday season,” said Jill Soltau, CEO J.C. Penney. 

Under the terms of the agreement, Brookfield and Simon will acquire substantially all of Penney’s retail and operating assets. The retailer’s real estate assets (which includes about 160 owned and ground-leased store properties) and size distribution centers will be part of a new property holding company, or PropCo, owned by Penney’s lenders, which will rent back the properties to the operating company (Simon and Brookfield). The parties have until Monday to finalize a master lease agreement between the mall landlords and the lenders.

The deal is subject to court approval and other conditions, with a hearing expected to be set for early November. If the court approves, the deal will close in advance of the December holiday season and Penney will conduct business outside of Chapter 11 under its banner with Simon and Brookfield as its owners. 

Certain components of the overall transaction are expected to draw more formal and detailed objections in the coming week. A minority first-lien lender group, which previously raised objections over the majority first-lien lender group’s role in the discussions, has sent in its own proposal to join the transaction. The court is expected to hear more details on its objections and counter proposal at a hearing on Oct. 26.

Kirkland & Ellis LLP is serving as Penney’s legal adviser, Lazard is serving as financial adviser, and AlixPartners LLP is serving as restructuring adviser to the Company.

Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal counsel to Brookfield and Simon.