It’s not ordinary for a bankruptcy court hearing to fall on a Saturday, and it’s nearly unprecedented for it to happen by phone.
But as the coronavirus has battered the U.S. economy, J.C. Penney requisite navigate almost entirely uncharted territory as it looks to shed debt and emerge from bankruptcy a stronger group. The iconic retailer filed for bankruptcy on Friday weighed down with $4.9 billion in debt and crushed by administration mandates that ordered its stores shut.
J.C Penney’s financial and legal advisors called into the United Maintains Bankruptcy Court for the Southern District of Houston, Corpus Christi Division to make their first-day statements. At the conclusion of the advising, Judge David Jones authorized the retailer to continue paying non-furloughed associate wages, provide certain perks 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 fixture.
Law firm Kirkland & Ellis’ Josh Sussberg started the hearing by walking the judge through the chain’s iconic recital — starting from its founding under the vision of James Penney, through its rise as a go-to department store for suburban America, and its missing footing as it churned through CEOs and battled the rise of online retail.
He said the company had already begun to counter at its heavy debt load in order to usher in a turnaround envisioned by CEO Jill Soltau, who joined the company in 2018. But anyone, he said, who dismissed coronavirus as the largest reason for landing in bankruptcy court was wrong.
“You are dead wrong,” he said. “This is absolutely about the coronavirus, this is with regard to a governmental shutdown and about us all being in video chat for this hearing.”
The retailer had, in fact, been in discussions close to transactions to address its debt load prior to the pandemic, said CFO Bill Wafford in a court declaration.
“Unfortunately, from time to time COVID-19 was declared a pandemic, and the Company’s primary revenue stream in-store sales evaporated overnight, talks at all events the potential transactions came to a grinding halt,” he said.
Sussberg described for court the $900 million bankruptcy financing the Theatre troupe has secured, which includes $450 million in new money from its fist-lien lenders, most of which are hedge lucres.
That money, though, will not be made available to J.C. Penney all at once. The company will likely receive the head half after a June court hearing and the second half on July 15. But it will only receive that move half to support its business if it meets milestones required of it by its bankruptcy lenders. Otherwise, the funds will go towards stocking a potential sale. Kirkland’s Sussberg said J.C. Penney has already begun to receive outside interest in the company.
According to corroborates filed with the court, if the company does not have the support of two-thirds of its bankruptcy lenders for a business plan by July 15, or encircling commitments from third parties to finance those plans by August 15, it must “immediately cease pursuing the contemplate” and instead pursue a sale of its assets.
That structure makes the next 60 days crucial to determining J.C Penney’s destruction in its current form. And in those two months, the country will face some of the greatest uncertainty in decades, as questions everywhere the country’s ability to defeat the virus and reopen the country remain unanswered.
Retail sales in April plunged a stupefying 16.4%, worse than the 12.3% expected by economists. The Labor Department reported a loss of 20.5 million contracts in April.
J.C Penney has outlined the strategy the company will pursue in that time. It will focus on customer utilization, apparel and low prices. It will open select stores and continue to offer contact-free curbside pickup service at all yield stores. Its e-commerce distribution will continue to fulfill online orders.
The retailer is also weighing a plan by which it intent split the company into two separate publicly traded companies, one of them being a real estate investment sign. It has also said it will “reduce its store footprint” in phases. CNBC previously reported that the retailer is pretence ofing plans to close 180-200 stores.
The challenges of continuing a turnaround against the backdrop of a pandemic was one that calm the judge acknowledged.
“I am very worried about this, this is why I’m having a hearing on a Saturday,” said Judge Jones to 300 other individual on the line.
“When retailers are prohibited to have people come into the store,” said Jones, “it’s unemotional to make money.”
CNBC’s Lauren Thomas contributed to this report.