JCPenney today filed a settlement agreement with a minority group of first lien lenders that aims to resolve disputes that could have held up confirmation of a Chapter 11 plan and an integrated set of transactions that involve selling the retailer’s property assets through a credit bid, while its operating business would be sold to mall owners Simon Property Group and Brookfield Property Partners.
The lender settlement comes as JCPenney moves toward a hearing in the US Bankruptcy Court for the Southern District of Texas on its proposed set of restructuring transactions. Simon and Brookfield have jointly bid for JCPenney’s operating assets, referred to in the retailer’s Chapter 11 case as the OpCo bid. Components of the OpCo transaction include a USD 692m cash payment from the purchasers and the paydown of JCPenney’s asset-based loan (ABL) obligations. As of its Chapter 11 petition date in May, JCPenney had USD 1.179bn in outstanding ABL debt.
In another part of the restructuring, known as the PropCo sale, a group of first lien lenders are set to acquire equity in real estate investment trusts (REITs) that will be established to own a number of stores and distribution centers. That transaction calls for the lenders to make a credit bid, comprising USD 900m under a debtor-in-possession (DIP) facility and USD 100m under first lien loan and note debt. The REITs would then enter a master lease agreement to allow the reorganized OpCo to make use of the stores and distribution centers.
As JCPenney has attempted to secure court approval of the transactions, it faced resistance from a minority group of first lien debt holders, which includes Aurelius Capital Management, Bank of America and BofA Securities, Carlson Capital, and First Pacific Advisors, among others. The settlement filed today, however, would resolve the minority group’s concerns and allow both the restructuring transactions and a Chapter 11 plan process to move ahead, according to bankruptcy court documents.
Through the settlement, which JCPenney and the first lien group previewed on Monday (2 November), the retailer would make an additional distribution of USD 40m in cash to the minority group, while JCPenney and a majority first lien lender group would also cover USD 6m in legal and professional advisor fees for the minority group.
Another part of the settlement involves an agreement on the allocation of the minority group’s participation in the USD 1bn PropCo credit bid. Essentially, that portion of the settlement ensures that the minority group’s allocation would be based on its holdings of first lien and debtor-in-possession (DIP) debt as of 1 November, and that the purchase price for determining the allocation would be fixed at the USD 1bn figure, regardless of whether that credit bid changes before a sale closes.
Following JCPenney’s filing of the settlement, the minority debt holder group filed a statement in support of the sale transactions the company is pursuing. That statement in support comes ahead of when JCPenney is due in court on Monday (9 November) for a hearing on its proposed sale transactions.
JCPenney filed for Chapter 11 on 15 May with USD 900m in DIP financing in hand and reported USD 8.57bn in assets against USD 8.03bn in liabilities in its Chapter 11 petition. The company’s 5.875% first lien notes, which mature in 2023, traded on 29 September at 31, according to MarketAxess. The company’s term loan is quoted in the 29.071/31.929 context, according to Markit.