The on-again, off-again bankruptcy of JCPenney is back on. The company announced late Friday (May 15) that it will file for Chapter 11 and close a still-to-be-determined amount of stores, per a company press release.
The announcement came as the company reached an agreement with 70 percent of its lenders, as well as a debt restructuring on the turnaround 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.”
Part of that plan will allow the beleaguered retailer to borrow an additional $450 million to keep the company running during the reorganization.
The announcement also came at the end of a day that began with the discount chain disclosing that it paid roughly $17 million in interest on a senior secured term loan credit facility to avoid a default. This morning, that payment was accompanied by the statement that the company was still considering “certain strategic alternatives.”
In an SEC filing, the chain said it had a five-day grace period to make a May 7 payment before non-payment would represent an “event of default.” The retailer noted that it “had entered into such [a] grace period in order to evaluate certain strategic alternatives, none of which have been implemented at this time and which continue to be considered.”
Although JCP had been struggling pre-crisis, management was clear that the pandemic had pushed it past the point of operational viability.
“The coronavirus (COVID-19) pandemic has created unprecedented challenges for our families, our loved ones, our communities and our country,” said Jill Soltau, chief executive officer of JCPenney. “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.”