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Clock Tick­ing

● J.C. Pen­ney said it is work­ing to fi­nal­ize a deal with lenders, Si­mon and Brook­field to sub­mit a pur­chase agree­ment due Fri­day.

- BY SINDHU SUN­DAR Business · Bankruptcies · Business Law · JC Penney · United States of America · U.S. Securities and Exchange Commission · David Bowie · David Jones · Patrick M. Collins · Brookfield · Simon Property Group · Brookfield Property Partners · Brookfield, New York

J.C. Pen­ney faces a key date Fri­day in its sale process as it rushes to com­plete a deal with lenders, Si­mon and Brook­field.

J.C. Pen­ney is still ne­go­ti­at­ing its planned sale to a group of first-lien lenders and land­lords Si­mon Property Group and Brook­field Property, in a process that con­tin­ues to drag on as key dates loom this week.

In a reg­u­la­tory fil­ing on Wed­nes­day, the re­tailer wrote that it is still “in dis­cus­sions re­gard­ing the trans­ac­tions con­tem­plated by the [let­ter of in­tent]” between the com­pany, a group of ma­jor­ity first-lien lenders as well as Si­mon and Brook­field.

The re­tailer’s up­date marks the lat­est in a se­ries of ap­par­ent de­lays in the case, and es­pe­cially since the par­ties filed the Sept. 10 let­ter of in­tent, a non-bind­ing doc­u­ment out­lin­ing a po­ten­tial sale deal as part of J.C. Pen­ney’s bank­ruptcy re­struc­tur­ing process to sus­tain the com­pany as a go­ing con­cern.

The de­lays also high­light the com­plex­ity of the con­tem­plated sale, and the pub­lic na­ture of a deal process in the con­text of bank­ruptcy pro­ceed­ings, where dead­lines are driven by lenders and each step for­ward re­quires doc­u­men­ta­tion and court ap­proval.

“The terms of any po­ten­tial trans­ac­tion are sub­ject to de­fin­i­tive doc­u­men­ta­tion that must be agreed upon by all par­ties and sub­se­quently ap­proved by the bank­ruptcy court,” the re­tailer wrote Wed­nes­day in its 8-k fil­ing with the U.S. Se­cu­ri­ties and Ex­change Com­mis­sion.

Rep­re­sen­ta­tives for J.C. Pen­ney,

Si­mon and Brook­field, and an at­tor­ney for the lender group in the sale did not com­ment Wed­nes­day.

Pen­ney’s ad­vis­ers have em­pha­sized in court ap­pear­ances and fil­ings so far that the par­ties’ stated goal is ul­ti­mately to pre­serve the re­tailer as a go­ing con­cern busi­ness and re­tain some 70,000 em­ploy­ees.

To that end, Texas bank­ruptcy Judge David Jones ap­proved a time­line in the pro­ceed­ings last week that would have the re­tailer ce­ment its sale talks and file a num­ber of doc­u­ments by this Fri­day, in­clud­ing a sale mo­tion, an as­set pur­chase agree­ment, a dis­clo­sure state­ment and a Chap­ter 11 plan.

The court also sched­uled a hear­ing next week on Oct. 20 to con­sider de­tails of the deal, and po­ten­tially grant con­di­tional ap­provals that would set the fi­nal steps of the re­tailer’s re­or­ga­ni­za­tion in mo­tion.

At this point in the process, cer­tain nondis­clo­sure agree­ments re­lated to sale dis­cus­sions have lapsed, which al­lowed the re­tailer to post cer­tain fi­nan­cial pro­jec­tions for its oper­a­tions from Oct. 4 to Jan. 2, 2021, along with its 8-k fil­ing on Wed­nes­day.

For the 13-week pe­riod the pro­jec­tions en­com­pass up to Jan­uary 2021, they fore­cast a net cash flow of $384 mil­lion, as well as pro­jected ex­penses in­clud­ing $108 mil­lion in debt ser­vice and fees for the du­ra­tion, as well as $66 mil­lion in dis­burse­ments to re­struc­tur­ing pro­fes­sion­als dur­ing that time.

Those pro­jec­tions are not ac­tual com­pany fi­nan­cials — rather, they are ones that were made as part of sale dis­cus­sions, ac­cord­ing to the fil­ing.

But such num­bers can of­fer some sense of the com­pany’s fi­nances to other in­ter­ested par­ties in the case, bank­ruptcy at­tor­neys said.

“Bank­ruptcy is gen­er­ally a trans­par­ent process,” said Pa­trick Collins, bank­ruptcy and re­struc­tur­ing part­ner at Far­rell Fritz PC, who is not in­volved in the J.C. Pen­ney case, and spoke gen­er­ally.

“If it’s about the bank­rupt com­pany, it’s go­ing to be pub­lic in some shape or form even­tu­ally, be­cause bank­ruptcy is all about dis­clo­sure of the fi­nan­cial con­di­tion of the com­pany,” he said. “The pro­jec­tions are of in­ter­est to par­ties in­ter­ested in putting in a bid [who] want to know what the pro­jected per­for­mance, per­haps by a store [for ex­am­ple], will be.”

So far, a group of mi­nor­ity first-lien lenders has raised its ob­jec­tions to the planned sale, say­ing the terms ap­pear to fa­vor the ma­jor­ity group of firstlien lenders over other cred­i­tors in the process. The mi­nor­ity group has in­di­cated plans to sub­mit a counter- of­fer, which it is ex­pected to dis­cuss at a hear­ing in the case sched­uled for Oct. 20.

The court has also set time­lines for some of the fi­nal steps in the process, with a sale hear­ing sched­uled for Nov. 2 and Chap­ter 11 plan hear­ings sched­uled for Nov. 24 and 25.

Courts gen­er­ally as­sess sale agree­ments with an in­cli­na­tion to trust com­pa­nies’ judg­ment of their fi­nances and op­tions for sur­vival, bank­ruptcy ex­perts said. Un­less the court ob­serves signs that the process did not in­volve arms-length ne­go­ti­a­tions, or sees some other is­sue with the ne­go­ti­a­tions, it tends to sup­port out­comes that keep the com­pany alive.

“When you’re talk­ing about a bank­ruptcy sale, there’s a de­gree of def­er­ence to the debtor, as far as whom to sell it to and how much to sell it for,” said Mark Bog­danow­icz of Howard & Howard At­tor­neys PLLC. Bog­danow­icz did not com­ment on the J.C. Pen­ney case and spoke gen­er­ally.

“It’s ba­si­cally a busi­ness judg­ment stan­dard, and what that means is, as long as the debtors have come for­ward with a le­git­i­mate busi­ness rea­son for sup­port­ing the trans­ac­tion, then that won’t be sec­ond guessed by the courts,” Bog­danow­icz said.

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