J.C. Penney Company, Inc. – Court Grants (Conditional) Approval of Disclosure Statement, Schedules November 24th Confirmation Hearing

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October 26, 2020 – The Court hearing the J.C. Penney Company Inc. cases issued an order approving (i) the Debtors’ Disclosure Statement (conditionally), (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in an November 14th Plan confirmation hearing [Docket No. 1655]. 

The Debtors also filed solicitation versions of their Plan and Disclosure Statement, with each attaching a redline showing changes to the version filed on October 20, 2020 [Docket Nos. 1646 and 1647, respectively]. The most recent set of changes continue to reflect the Debtors' October 20th announcement as to its proposed OpCo and PropCo sales (see further below), notably as to the treatment of general unsecured creditors and go forward supplier claims, which together are slated to receive less than 1% recoveries on what is approximately $1.34bn of claims. The only difference between the two classes appears to be that those with an ongoing relationship will also receive a waiver of any existing preference actions the Debtors might have against them.

Plan Outline

The Disclosure Statement [Docket No. 1647] reads: “The core terms of the RSA will be implemented through (i) the Sale Order which will approve entry into the Asset Purchase Agreement, and (ii) the Plan, which contemplates, among other things:

  • Each Holder of Other Priority Claims shall receive payment in full in Cash on the later of the Effective Date and such date such Other Priority Claim becomes an Allowed Other Priority Claim or such other treatment rendering such Holder’s Allowed Other Priority Claim Unimpaired;
  • Each Holder of Other Secured Claims shall receive, at the option of the applicable Debtor or Plan Administrator, as applicable: (i) payment in full in Cash; (ii) delivery of the collateral securing any such Claim and payment of any interest required under section 506(b) of the Bankruptcy Code; (iii) Reinstatement of such Claim; or (iv) such other treatment rendering such Claim Unimpaired;
  • To the extent their claim has not already been satisfied, Holders of an Allowed ABL Claim or Allowed Secured Swap Claim shall receive payment in full, in Cash;
  • Each Holder of First Lien Claims shall receive (a) pursuant to the Sale Transaction, on account of the Aggregate Bid, its Credit Bid Pro Rata share of the Credit Bid Distribution, subject to dilution under the Plan and (b) its Pro Rata share of any cash remaining in the Wind-Down Reserve, Professional Fee Escrow, and Administrative / Priority Claims Reserve once all Allowed Claims entitled to payment therefrom have been satisfied and no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated;
  • Each Holder of Second Lien Notes Claims shall receive its Pro Rata share (taken together with the Unsecured Notes Claims, General Unsecured Claims, and Key Go Forward Supplier Claims) of any cash remaining in the Wind-Down Reserve once all Allowed Claims entitled to payment therefrom have been satisfied, no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated, and all First Lien Claims have been satisfied in full;
  • Each Holder of Unsecured Notes Claims shall receive its Pro Rata share (taken together with the Second Lien Notes Claims, General Unsecured Claims, and Key Go Forward Supplier Claims) of any cash remaining in the Wind-Down Reserve once all Allowed Claims entitled to payment therefrom have been satisfied, no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated, and all First Lien Claims and Second Lien Notes Claims have been satisfied in full;
  • Each Holder of General Unsecured Claims shall receive its Pro Rata share of its Pro Rata share (taken together with the Second Lien Notes Claims, Unsecured Notes Claims, and Key Go Forward Supplier Claims) of any cash remaining in the Wind-Down Reserve once all Allowed Claims entitled to payment therefrom have been satisfied, no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated, and all First Lien Claims and Second Lien Notes Claims have been satisfied in full; and
  • Each Holder of Key Go Forward Supplier Claims shall receive (i) its Pro Rata share (taken together with the Second Lien Notes Claims, Unsecured Notes Claims, and General Unsecured Claims) of any cash remaining in the Wind-Down Reserve once all Allowed Claims entitled to payment therefrom have been satisfied, no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated, and all First Lien Claims have been satisfied in full; and (ii) a waiver of any preference actions arising under section 547 of the Bankruptcy Code or any comparable “preference” action arising under applicable nonbankruptcy law.

The Restructuring Transactions embodied by the Plan, the Sale Order, and the RSA are a significant achievement for the Debtors in the midst of an unprecedented and challenging operating environment. The Debtors strongly believe that the Plan is in the best interests of their estates, and represents the best available alternative at this time. The Debtors are confident that they can implement the Restructuring Transactions contemplated by the Plan to maximize stakeholder recoveries and ensure that JCP can efficiently emerge from chapter 11 and continue to serve as an American retail icon. For these reasons, the Debtors strongly recommend that Holders of Claims entitled to vote on the Plan vote to accept the Plan.”

OpCo and PropCo APA

On October 20th, 2020 – The Debtors filed a draft asset purchase agreement (the "APA," Docket No. 1590) and filed a related press release announcing an integrated transaction that will see the Debtors operating and property assets sold in a pair of asset sales. In its press release, J.C. Penney stated: "that it has filed a draft asset purchase agreement ('APA'), which tracks the terms of the previously announced letter of intent, to sell JCPenney. All parties are working to conclude negotiations and intend to utilize the ongoing mediation process to help achieve that goal. Key terms of the draft APA are as follows:

  • Brookfield Asset Management, Inc ('Brookfield') and Simon Property Group ('Simon') will acquire substantially all of JCPenney’s retail and operating assets ('OpCo') through a combination of cash and new term loan debt.
  • The formation of separate property holding companies ('PropCos'), comprising 160 of the Company’s real estate assets and all of its owned distribution centers, which will be owned by the Company’s Debtor-in-Possession and First Lien Lenders ('First Lien Lenders').
  • The OpCo and PropCos will enter into a master lease with respect to the properties and distribution centers moved into the PropCos. 

A hearing to seek Court approval for the transaction is expected to be scheduled for early November 2020. If Court approval is received and the closing conditions in the APA are met, it is expected that the OpCo sale will close in advance of the December 2020 holiday season. JCPenney’s operating assets will then conduct business outside of the Chapter 11 process under the JCPenney banner with Simon and Brookfield as its owners. The First Lien Lenders are expected to acquire ownership of the PropCos through the Company’s Plan of Reorganization, which will be completed following the closing of the OpCo transaction.

The following is an amended summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):

  • Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is 100%.
  • Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is 100%.
  • Class 3 (“ABL Claims and Secured Swap Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $1,258,687,395 and expected recovery is 100%.
  • Class 4 (“First Lien Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,571,414,063 and expected recovery is 0 – 6.4% 9 (the range depends on how the $1.0bn credit bid is split between the OpCo and PropCo bids, see further just below). Each holder of an allowed First Lien Claim shall receive, (a) pursuant to the Sale Transaction, on account of the Aggregate Bid, its Credit Bid Pro Rata share of the Credit Bid Distribution, subject to dilution under the Plan and (b) its Pro Rata share of any cash remaining in the Wind-Down Reserve, Professional Fee Escrow, Administrative / Priority Claims Reserve once all Allowed Claims entitled to payment therefrom have been satisfied and no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated. Pursuant to the proposed Asset Purchase Agreement, BidCo is delivering a $1 billion credit bid (collectively defined in the Asset Purchase Agreement as the “Credit Bid Amount.”). Further, pursuant to the proposed Asset Purchase Agreement, at the OpCo Closing, BidCo shall be deemed to assign a portion of the Credit Bid Amount to the OpCo Purchaser (referred to as the “OpCo Credit Bid Amount” in the Asset Purchase Agreement), with the remaining Credit Bid Amount to be credit bid at the PropCo Closing (referred to as the “PropCo Credit Bid Amount” in the Asset Purchase Agreement).The range of recoveries set forth herein for Holders of Allowed First Lien Secured Claims (a) assumes illustratively, that (x) on the one hand, all of the Credit Bid Amount is assigned to the OpCo Purchaser at the OpCo Closing (thus establishing the low end of the range of recovery for Holders of Allowed First Lien Secured Claims on account of distributions contemplated to be received under the Plan) and (y) on the other hand, all of the Credit Bid Amount is credit bid at the PropCo Closing (thus establishing the high end of the range of recovery for Holders of Allowed First Lien Secured Claims on account of distributions contemplated to be received under the Plan); (b) does not take into account the reduction in the Allowed Claim amount following the assignment and application of the OpCo Credit Bid Amount; and (c) only takes into account distributions to Holders of Allowed First Lien Secured Claims to be made under this Plan.
  • Class 5 (“Reserved”).
  • Class 6 (“Second Lien Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $405,765,753 and expected recovery is <1%. Each Holder of an Second Lien Notes Claim shall receive, up to the full amount of such Holder’s Allowed Second Lien Notes Claim, its Pro Rata share (taken together with the Unsecured Notes Claims, General Unsecured Claims, and Key Go Forward Supplier Claims) of any cash remaining in the Wind-Down Reserve once all Allowed Claims entitled to payment therefrom have been satisfied, no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated, and all First Lien Claims have been satisfied in full.
  • Class 7 (“Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,346,126,431 and expected recovery is <1%. Each Holder of an Unsecured Notes Claim shall receive, up to the full amount of such Holder’s Allowed Unsecured Notes Claim, its Pro Rata share (taken together with the Second Lien Notes Claims, General Unsecured Claims, and Key Go Forward Supplier Claims) of any cash remaining in the Wind- Down Reserve once all Allowed Claims entitled to payment therefrom have been satisfied, no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated, and all First Lien Claims and Second Lien Notes Claims have been satisfied in full.
  • Class 8A (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $710,090,918 and expected recovery is <1%. Each Holder of an Allowed General Unsecured Claim shall receive, up to the full amount of such Holder’s Allowed General Unsecured Claim, its Pro Rata share (taken together with the Second Lien Notes Claims Unsecured Notes Claims, and Key Go Forward Supplier Claims) of any cash remaining in the Wind-Down Reserve once all Allowed Claims entitled to payment therefrom have been satisfied, no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated, and all First Lien Claims have been satisfied in full.
  • Class 8B (“Key Go Forward Supplier Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $629,423,595 and expected recovery is <1% + value of preference waiver. Each Holder of an Allowed Key Go Forward Supplier Claim shall receive, (i) up to the full amount of such Holder’s Key Go Forward Supplier Claims, its Pro Rata share (taken together with the Second Lien Notes Claims, Unsecured Notes Claims, and General Unsecured Claims) of any cash remaining in the Wind-Down Reserve once all Allowed Claims entitled to payment therefrom have been satisfied, no Disputed Claims that may be entitled to payment from such sources remain to be adjudicated, and all First Lien Claims have been satisfied in full; and (ii) a waiver of any preference actions arising under section 547 of the Bankruptcy Code or any comparable “preference” action arising under applicable non-bankruptcy law.
  • Class 9 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%/100%.
  • Class 10 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%/100%.
  • Class 11 (“Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.
  • Class 12 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.

Key Dates

  • Voting Deadline: November 17, 2020
  • Plan Objection Deadline: November 21, 2020
  • Confirmation Hearing: November 24, 2020

Prepetition Indebtedness (slightly amended in solicitation Disclosure Statement)

Secured Debt 

Principal

ABL Facility

1,180.0mn

First Lien Term Loan

1,521.0mn 

First Lien Notes

500.0mn 

Second Lien Notes

400.0mn 

Total Secured Debt

$3,600.0mn

Unsecured Debt 

Principal

5.650% Unsecured Notes due 2020

105.0mn 

7.125% Debentures due 2023

9.0mn 

6.900% Unsecured Notes due 2026

2.0mn 

6.375% Unsecured Notes due 2036

388.0mn 

7.400% Debentures due 2037

312

7.625% Unsecured Notes due 2097

500.0mn 

Total Unsecured Debt

$1,318.0mn

Total Debt Outstanding

$4,919.0mn

About the Debtors

J. C. Penney Company, Inc. (NYSE: JCP), one of the nation’s largest apparel and home retailers, combines an expansive footprint of approximately 850 stores across the United States and Puerto Rico with a powerful e-commerce site, jcp.com, to deliver style and value for all hard-working American families. At every touchpoint, customers will discover stylish merchandise at incredible value from an extensive portfolio of private, exclusive and national brands. Reinforcing this shopping experience is the customer service and warrior spirit of nearly 85,000 associates across the globe, all driving toward the Company's mission to help customers find what they love for less time, money and effort.

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