A J.C. Penney store in Laguna Hills, California
Scott Mlyn | CNBC
U.S. mall owners Simon Property Group and Brookfield Property Partners are close to finalizing an $800 million deal to rescue the embattled department store chain J.C. Penney from bankruptcy, avoiding a total liquidation and saving about 70,000 jobs and 650 stores, Joshua Sussberg of the law firm Kirkland & Ellis said Wednesday.
Simon and Brookfield will pay roughly $300 million in cash and assume $500 million in debt, Sussberg said during a court hearing.
Meantime, the hedge funds and private-equity firms that have financed Penney’s bankruptcy are set to take ownership of some stores and the retailer’s distribution centers, in exchange for forgiving some of Penney’s $5 billion debt load. Penney’s lenders, led by H/2 Capital Partners, are going to own those assets in two different real estate investment trusts, or REITs, Sussberg said.
Hit hard by the coronavirus pandemic and swallowed by an overhang of debt, Penney filed for Chapter 11 bankruptcy protection in May. It had nearly 850 locations at the time.
Dozens of other retailers, including the department store chains Neiman Marcus, Stage Stores and Lord & Taylor, have filed for bankruptcy protection during the Covid-19 crisis. Some retailers have not found buyers to rescue them. Lord & Taylor, the oldest department store operator in the nation, is in the midst of liquidating. The home-goods chain Pier 1 Imports was also forced to liquidate.
Talks to rescue Penney have been going on for weeks. During an Aug. 31 hearing, Kirkland & Ellis’ Sussberg said talks with the top bidder that consisted of Penney’s landlords weren’t going anywhere. Instead, Penney’s lenders were going to prepare to make a credit bid to own the retailer as a stand-alone company, he said that the time.
Any deal by Simon and Brookfield is still subject to court approval and competing bids.
Simon has already reached deals this year to save men’s suit maker Brooks Brothers and denim retailer Lucky Brand from bankruptcy, teaming up with the apparel licensing firm Authentic Brands Group to do so. It also previously teamed up with ABG and Brookfield to save Forever 21. Brookfield in May said it was planning to spend $5 billion to save retailers hurt by the pandemic.
Analysts have said, among a number of reasons, the mall owners could be looking to save Penney to prevent from having multiple empty department stores at their malls, potentially triggering so-called co-tenancy clauses that allow other retailers in the mall to renegotiate their own leases or vacate. Owning Penney would also give Simon and Brookfield the ability to re-purpose their own real estate more easily, should some Penney stores in their malls close.
Representatives from Simon and Brookfield did not immediately respond to CNBC’s requests for comment.