October 28, 2020 – The Debtors filed an executed asset purchase agreement (the "APA") relating to the sale of (i) their "OpCo" assets to Copper Retail JV LLC (an entity controlled by Simon Property Group and Brookfield Property Group, the “OpCo Purchaser”) and (ii) their "PropCo" assets to Copper BidCo LLC (a new entity to be owned by certain of the Debtors' DIP and first lien lenders, “BidCo” or the “PropCo Purchaser” and, together with the OpCo Purchaser, the “Purchasers”) [Docket No. 1668]. 

The filing also included a blackine of the executed APA against a previously filed draft agreement and attached a number of transaction related documents (see further below).

On October 20, 2020, the Debtors filed a motion for authority to enter into the APA [Docket No. 1592] and at that point, the Debtors filed a draft of the APA which has now been executed. The Court has yet to issue the order granting the authority although a proposed order has been filed at Docket No. 1685.

Further to the terms of the APA, the OpCo Purchaser will purchase the Debtors’ operating assets and run the Debtors’ retail operations (“OpCo”) on a go-forward basis. OpCo will be the new employer of the Debtors’ associates, the counterparty to the Debtors’ vendor contracts, and the “tenant” on all store leases. 

Additionally, a newly-formed entity (“PropCo”) will hold 160 owned and ground-leased store properties and 6 distribution centers and will issue securities to the DIP Lenders and the First Lien Ad Hoc Group (the “PropCo Purchaser” and, together with the OpCo Purchaser, the “Purchasers”). At those locations, PropCo or its Affiliates will be the landlord to OpCo pursuant to the terms of a still being negotiated master lease agreement (the "Master Lease Agreement") which will govern the relationship between OpCo and PropCo.

At that point, the Debtors filed a draft of the APA which has now been executed.

In a press release announcing the signing of the APA, the Debtors said: "J. C. Penney Company, Inc. (OTCMKTS: JCPNQ) today announced that it has entered into an asset purchase agreement ('APA') with Brookfield Asset Management, Inc ('Brookfield'), Simon Property Group ('Simon') and a majority of the Company’s DIP and First Lien Lenders ('Majority First Lien Lenders').

Jill Soltau, the Debtors' Chief Executive Officer, commented in the release, “Signing a definitive APA with Brookfield, Simon and our Majority First Lien Lenders allows us to move forward towards the completion of our financial restructuring – and we are looking forward to operating under new ownership outside Chapter 11 in advance of the 2020 holiday season…Our team remains laser focused on implementing our Plan for Renewal to Offer Compelling Merchandise, Drive Traffic, Deliver an Engaging Experience, Fuel Growth and Build a Results-Minded Culture.”

According to the release, the key terms of the APA are as follows:

• Brookfield and 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 DIP and First Lien Lenders.
• The OpCo and PropCos will enter into master leases with respect to the properties and distribution centers moved into the PropCos (the "Master Lease Agreement"). JCPenney, Simon and Brookfield and the Majority Lender Group have reached agreement on all outstanding business points in the Master Lease Agreement.

Key Terms of the APA:

OpCo Assets

• Sellers: J.C. Penney Company, Inc. and the subsidiaries of the Company indicated in the Asset Purchase Agreement.
• OpCo Purchaser: Copper Retail JV, LLC.
• Purchase Price: The aggregate consideration for the OpCo Acquired Assets shall be: (i) OpCo Credit Bid Amount [a portion of the $1.0bn of prepetition and DIP debt that can be credit bid by BidCo can be assigned to OpCo]; (ii) a cash payment (the “OpCo-Company Closing Date Payment”) equal to (1) $692,000,000 plus (2) the Payoff Amount [this to be determined figure to pay off ABL obligations and swap obligations], plus (3) 50% of the amount (if any) by which Estimated October EBITDA exceeds the Target October EBITDA, less (4) 50% of the amount (if any) by which Target October EBITDA exceeds Estimated October EBITDA, less (5) the Estimated Closing Cash, less (6) Proposed November Non-Operating Costs; less (7) one million dollars ($1,000,000); and (iii) assumption of the OpCo Assumed Liabilities.
• Break-Up Fee: If the Asset Purchase Agreement is terminated prior to the OpCo closing and pursuant to certain subsections of Section 8.1, the Company shall pay to OpCo Purchaser a breakup fee in an amount equal to $9,000,000 (the “Break-Up Fee”). The Break-Up Fee shall constitute an allowed super-priority administrative expense claim.

PropCo Assets

• Sellers: J.C. Penney Company, Inc. and the subsidiaries of the Company indicated in the Asset Purchase Agreement.
• PropCo Purchaser: Copper BidCo LLC.
• Purchase Price: The aggregate consideration for the PropCo Acquired Assets shall be: (i) PropCo Credit Bid Amount, consisting of a portion of the “Credit Bid Amount” (this comprised of $900.0mn of DIP Obligations and a total of $100.0mn of prepetition Term Loan Obligations and First Lien Notes Obligations); and (ii) the assumption of the PropCo Assumed Liabilities.

Transaction Documentation

The Debtors' filing attaches the following documents: 

• that certain Patent Assignment Agreement as Exhibit B to the Asset Purchase Agreement 
• that certain Trademark Assignment Agreement as Exhibit C to the Asset Purchase Agreement 
• that certain Copyright Assignment Agreement as Exhibit D to the Asset Purchase Agreement 
• that certain Domain Name Assignment Agreement as Exhibit E to the Asset Purchase Agreement 
• that certain Form of Deed as Exhibit F to the Asset Purchase Agreement 
• that certain Assignment and Assumption of Lease as Exhibit G to the Asset Purchase Agreement
• that certain Credit and Guaranty Agreement, dated as of [], 2020, by and among [], asBorrower, [], as Holdings, Certain Subsidiaries of Borrower, as Guarantors, the Lenders Party Hereto from Time to Time, as Lenders, GLAS USA LLC, as Administrative Agent,and GLAS Americas LLC, as Collateral Agent, as Exhibit J to the Asset Purchase Agreement
• that certain Transition Services Agreement as Exhibit K to the Asset Purchase Agreement
• that certain Escrow Agreement as Exhibit L to the Asset Purchase Agreement
• that certain Earnout Agreement as Exhibit N to the Asset Purchase Agreement
• that certain Benefits Transition Services Agreement as Exhibit O to the Asset Purchase Agreement
• that certain amendment to the Restructuring Support Agreement reflecting the foregoing as Exhibit 3
• that certain direction letter described in the Asset Purchase Agreement as Exhibit 4

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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