October 20, 2020 – The Debtors have filed a Plan of Reorganization and a related Disclosure Statement [Docket Nos. 1591 and 1593, respectively]; with the filings made possible following the progression of a September 10, 2020 letter of intent (amongst the Debtors and the parties who have agreed to buy the Debtors' operating and real estate assets) to a draft asset purchase agreement (the "APA"). The Debtors have filed the APA at Docket No. 1590.

In a press release announcing the development, J.C. Penney states: "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.

RSA and Plan Overview

The Debtors' Disclosure Statement provides: "On May 15, 2020, the Company entered into a restructuring support agreement (the 'RSA') with certain consenting First Lien Lenders party thereto (the 'Consenting First Lien Lenders'), which contemplates a comprehensive reorganization of the Company’s businesses by establishing both a financially sustainable operating company ('OpCo') and a holding entity for certain of the Debtors’ real property assets ('PropCo) and provides for various financing arrangements geared towards a successful going-concern outcome for the Debtors. The restructuring transactions contemplated therein aim to substantially deleverage the Debtors’ balance sheet and allow the Debtors to move expeditiously through chapter 11. The series of transactions set forth in the Plan and the Asset Purchase Agreement (collectively, the 'Restructuring Transactions') effectuate such a reorganization.

To ensure the Restructuring Transactions maximize value for all stakeholders, the RSA also provided for (i) a robust market-testing process seeking interest in and bids for, among other things, providing debt or equity financing to OpCo and/or purchasing some or all of the assets of the Debtors  (the 'Market Test') and (ii) a sale 'toggle' feature allowing for a potential sale of all or substantially all of the Debtors’ assets to a third-party purchaser if certain plan-related milestones were unmet. Further, to signal to potential bidders the Debtors’ interest in pursuing all value-maximizing bids, the Debtors sought, and the Bankruptcy Court authorized, procedures pursuant to which work fees may be paid to select potential bidders.

Throughout the Debtors’ chapter 11 cases, the Debtors and their advisors solicited interest regarding new money debt financing (including financing that would “take out” any of the “take back” paper otherwise contemplated under the RSA), the sale or sale and leaseback of certain owned distribution centers, the provision of new capital, the purchase of the entire company, and/or the purchase of a part of the Debtors’ business. Following a comprehensive outreach initiative, as further described herein, the Market Test yielded four bids for certain of the Debtors’ assets and, most importantly, resulted in entry into the Letter of Intent and the Asset Purchase Agreement each described in more detail below.

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:

• Holders 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;
• Holders 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;
• Holders 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, 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;
• Holders of Second Lien Notes Claims shall receive its Pro Rata share 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;
• Holders of Unsecured Notes Claims shall receive its Pro Rata share 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;
• Holders of General Unsecured Claims shall receive its Pro Rate share of [ ]; and
• Holders of Go-Forward Landlord Claims and Key Go-Forward Creditor Claims shall receive [ ]."

The OpCo and PropCo Tranactions

The Disclosure Statement provides: "On September 10, 2020, Brookfield Property Group and Simon Property Group (together, the 'OpCo Purchaser'), the Debtors, and that certain ad hoc group of first lien lenders represented by Milbank LLP (the 'First Lien Ad Hoc Group,' and together with OpCo Purchaser and the Debtors, the 'Restructuring Transaction Parties') executed the Letter of Intent (the 'Letter of Intent'), which the Debtors filed on September 25, 2020 [Docket No. 1489]. The Letter of Intent sets forth the Restructuring Transaction Parties’ agreed-upon key terms for the purchase and sale of certain of the Debtors’ operating assets (the 'OpCo Assets') and lays out the general terms and conditions pursuant to which the OpCo Purchaser agreed to purchase the OpCo Assets (the 'OpCo Transaction').

On September 25, 2020, the Debtors and the First Lien Ad Hoc Group executed the Second Amendment to Restructuring Support Agreement (the 'RSA Amendment'), which incorporated into the RSA a term sheet (the 'Credit Bid Term Sheet') setting forth the Restructuring Transaction Parties’ agreed-upon key terms for a credit bid for the sale of PropCo (the 'PropCo Transaction'). The OpCo Transaction and PropCo Transaction together form a unified, comprehensive restructuring transaction for the Debtors’ businesses, the terms of which are finalized and memorialized in the Asset Purchase Agreement.

Central to the Restructuring Transactions is the Asset Purchase Agreement entered into between the OpCo Purchaser, the PropCo Purchaser, and the Debtors dated as of [ ], 2020 (the 'Asset Purchase Agreement'). Notably, the Asset Purchase Agreement includes standard “fiduciary-out” provisions, whereby the Debtors are able to pursue a superior transaction, in the event of an alternate bid. The Bankruptcy Court will hear the Debtors’ motion to approve the Asset Purchase Agreement at a hearing scheduled for November 2, 2020. It is possible that the OpCo Sale may close and OpCo may emerge before the Effective Date. In connection with the consummation of the transactions set forth in the Asset Purchase Agreement, in connection with their $1 billion aggregate credit bid, the holders of DIP Claims and First Lien Claims will receive their ratable portion of each of (A) the New PropCo Securities, (B) a secured term loan facility at OpCo (which will be issued in a notional amount of $520 million), (C) the interests in an entity, which has the right to receive certain potential payments from OpCo, and (D) cash, in each case to the extent and as set forth in the Asset Purchase Agreement."

The following is a summary of classes, claims, voting rights and expected recoveries showing changes (defined terms are 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.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“ABL Claims and Secured Swap Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected aggregate amount of claims is $1,258,687,3954 (includes the projected amount of outstanding principal and accrued and unpaid interest as of the Petition Date) and recovery is 100%.
• Class 4 (“First Lien Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims is $1,571,414,063 and recovery is [ ]%. 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.
• Class 5 (“[Reserved”)
• Class 6 (“Second Lien Notes Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims is $405,765,753 and recovery is [ ]%. 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 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 projected aggregate amount of claims is $1,346,126,431 and recovery is [ ]%. 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 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 projected aggregate amount of claims is $[ ] and recovery is [ ]%. Each Holder of an Allowed General Unsecured Claim shall receive, up to the full amount of such Holder’s Allowed General Unsecured Claim, [ ].
• Class 8B (“Go-Forward Landlord Claims and Key Go-Forward Creditor Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims is $[ ] and recovery is [ ]%. Each Holder of an Allowed Go-Forward Landlord Claim or Key Go-Forward Creditor Claim shall receive, up to the full amount of such Holder’s Allowed General Unsecured Claim, [ ].
• Class 9 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. 
• Class 10 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan. 
• Class 11 (“Existing Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.
• Class 12 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.

The Disclosure Statement attached the following documents:

• Exhibit A: Plan of Reorganization 
• Exhibit B: RSA
• Exhibit C:  Corporate Organization Chart

Prepetition Indebteness

As of October 20, 2020, the Debtors had approximately $4.9bn in total outstanding principal amount of prepetition funded debt obligations and, as of September 4, 2020, approximately 322,663,112 shares of outstanding common stock. The following table summarizes the Debtors’ capital structure as of the Petition Date:

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