November 23, 2020 – The Debtors filed an Amended Plan of Reorganization which attached a redline showing changes to the version filed on November 20, 2020 [Docket No. 2022]. In anticipation of their November 24th Plan confirmation hearing, the Debtors also filed (i) their memorandum in support of Plan confirmation (the "Memorandum") [Docket No. 2021], amended Plan voting results [Docket No. 1985], (iii) an Amended Plan Supplement [Docket No. 2019] and (iv) a Plan confirmation witness and exhibit list [Docket No. 2020].

The Plan amendments include a change to the aggregate amount of claims in respect of Class 4 (“First Lien Claims”) and new language in respect of the treatment of unexpired leases. 

The Debtors expect to face only one objection at their Plan confirmation hearing, that of their "Ad Hoc Committee of Equity Holders." That objection, the Debtors argue, misses the mark in respect of both its main arguments: (i) it fails to prove that the Debtors might have fared better in liquidation (not so, the Debtors argue as liquidation would have simply raised otherwise fixed existing costs to the estates by any further amounts incurred by a trustee tasked with implementing the Debtors' sale transaction in Chapter 7) and (ii) fails to substantiate its "vague references to potential claims held by the Debtors’ estate."

Plan Overview

The Memorandum provides the Debtors' perspective on the eve of their Plan confirmation hearing: "Confirmation of the Plan is the culmination of significant efforts to save a 118 year-old American icon. Retail restructurings all too often end in liquidation. But the Debtors and their Professionals are simply unwilling to accept that outcome. The Plan, which enjoys widespread support and has overwhelmingly been accepted by those entitled to vote, is consistent with the Bankruptcy Code, provides a meaningful recovery to as many creditors as possible, and ensures that all remaining tasks in these cases are completed in an orderly manner. 

This is exactly what the Debtors sought to achieve when they filed these chapter 11 cases with the clear mandate of saving J. C. Penney and ensuring a full and robust marketing process was undertaken. And between May and October 2020, the Debtors ran an exhaustive five-month marketing process, interacting with approximately 100 potential buyers, including alternative investment firms, private equity funds, strategic, and financial partners. 

This marketing process resulted in the integrated transaction entered into between the Debtors, the First Lien Ad Hoc Group (as defined herein), Simon Property Group ('Simon'), and Brookfield Property Group ('Brookfield') and reflected in the Asset Purchase Agreement this Court approved on November 9, 2020. No alternative, superior, or actionable bid exists. And while the Debtors wish that they had been able to secure more consideration for all stakeholders, the market spoke loud and clear, the First Lien Class is clearly the fulcrum and no junior creditors or equity holders are entitled to a recovery under the law. 

The voting results themselves show that almost every one of the Debtors’ creditor groups believes the Plan is the best path forward to maximize their own recoveries. The Voting Classes unanimously voted in favor of the Plan. There remain only a handful of objections standing in the way of confirmation (collectively, the 'Objections') as of the filing of this Brief and the Debtors are hopeful that by the time the hearing to consider Confirmation of the Plan begins, the only outstanding, unresolved objection will be from the Ad Hoc Committee of Equity Holders."

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.”

The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as 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. On the Effective Date, each holder of a First Lien Claim shall receive, subject to the terms of the Minority First Lien Group Settlement:(a) pursuant to the Sale Transaction, on account of the Aggregate Credit Bid, its Credit Bid Pro Rata share of the Credit Bid Distributions subject to distribution 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 aggregate amount of claims is $524,925,000 and expected recovery is <1%. Each Holder of a 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 portion of the $1,500,000 of Cash distributed to the Second Lien Notes Trustee on the Effective Date remaining after the application of such Cash to the indemnification claims of the Second Lien Notes Trustee pursuant to the Second Lien Notes Indenture, plus its Pro Rata share of (taken together with the Unsecured Notes Claims and General Unsecured Claims) 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, plus its Pro Rata share (taken together with the Unsecured Notes Claims and General Unsecured Claims) of the Unsecured Claims Earnout Pool.
• 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 of any portion of the $750,000 of Cash distributed to the Unsecured Notes Trustees on the Effective Date remaining after the application of such Cash to the indemnification claims of the Unsecured Notes Trustee pursuant to the Unsecured Notes Indentures, plus its Pro Rata share (taken together with the Second Lien Notes Claims and General Unsecured Claims) of any Cash remaining in the Wind-Down Reserve once all 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, plus its Pro Rata share (taken together with the Second Lien Notes Claims and General Unsecured Claims) of the Unsecured Claims Earnout Pool
• Class 8 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. Each Holder of a General Unsecured Claim shall receive, (i) up to the full amount of such Holder’s General Unsecured Claim, its Pro Rata share (taken together with the Second Lien Notes Claims and Unsecured Notes 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, plus its Pro Rata share (taken together with the Second Lien Notes Claims and Unsecured Notes Claims) of the Unsecured Claims Earnout Pool; 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; provided that, upon the Effective Date, any potential recovery on account of any First Lien Deficiency Claim shall be deemed waived by Holders of First Lien Deficiency Claims and no Holder of a First Lien Deficiency Claim shall receive any recovery on behalf of such Claim. “Unsecured Claims Earnout Pool” means 50% of any incremental amounts payable under Section 1 of the Earnout Agreement between $110,000,000 and $140,000,000.
• 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%.

Voting Results

On November 21, 2020, the Debtors’ claims agent notified the Court of the Plan voting results [Docket No. 1985]. All four voting classes accepted the Plan, although the Unsecured Notes Claims class just barely met the claim amount threshold for acceptance. The voting results by class were as follows:

• Class 4 (“First Lien Claims”) 220 claim holders, representing $1,380,591,928.44 (or 98.81%) in amount and (93.62%) in number, accepted the Plan. 15 claim holders, representing $16,572,337.36 (or 1.19%) in amount and (6.38%) in number, rejected the Plan.
• Class 6 (“Second Lien Claims”) 89 claim holders, representing $241,080,500.00 (or 81.24%) in amount and (94.68%) in number, accepted the Plan. 5 claim holders, representing $55,664,000.00 (or 18.76%) in amount and (5.32%) in number, rejected the Plan.
• Class 7 (“Unsecured Notes Claims”) 782 claim holders, representing $304,818,082.00 (or 68.45%) in amount and (73.22%) in number, accepted the Plan. 286 claim holders, representing $140,474,000.00 (or 31.55%) in amount and (26.78%) in number, rejected the Plan.
• Class 8 (“General Unsecured Claims”) 689 claim holders, representing $295,291,943.19 (or 91.8%) in amount and (89.48%) in number, accepted the Plan. 81 claim holders, representing $26,378,669.96 (or 10.52%) in amount and (8.2%) in number, rejected the Plan.

Asset Sale

At a November 9th sale hearing, the Court hearing the J.C. Penney Company cases (i) authorized the Debtors to enter into their October 28th APA (defined immediately below) with Simon Property Group, Brookfield Property Group and certain debtor-in-possession ("DIP") and prepetition lenders and (ii) approved a pair of private sales to which the Debtors ascribe a $1.75bn enterprise value [Docket No. 1814].

On October 28th, 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]. Filed with the executed APA were numerous transaction-related documents which are listed below.

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.

In a November 9th press release, that focused on the PropCo sale and the expectation that the Debtors' retail assets will be up and running under new ownership in advance of the holiday selling season, the Debtors announced that: “The U.S. Bankruptcy Court for the Southern District of Texas (the ‘Court’) has approved the previously announced asset purchase agreement (‘APA’) with Brookfield Asset Management, Inc. (‘Brookfield’), Simon Property Group (‘Simon’) and the Company’s DIP and First Lien Lenders (‘First Lien Lenders’), which is supported by the Unsecured Creditors Committee. Pursuant to the APA, 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 OpCo transaction remains subject to additional closing conditions and is expected to close in late November 2020.”

Jill Soltau, the Debtors' Chief Executive Officer added: “With the 2020 holiday season in full swing, we are excited to operate under the new ownership of Brookfield and Simon outside of Chapter 11 and under the JCPenney banner.”

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 have filed the following documents [Docket No. 1682]: 

• 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

The Debtors’ Amended Plan Supplement [Docket No. 2019] attached the following exhibits:

• Exhibit D: Amended Restructuring Transactions Memorandum 
• Exhibit D-1: A comparison showing changes to the Restructuring Transaction Memorandum filed in the Original Plan Supplement 
• Exhibit E: Disclosure Regarding Administrative Claims

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