December 14, 2020 – Further to the Debtors' filing of an amended Plan on December 12th, the Court hearing the J.C. Penney Company cases issued an order confirming that Plan [Docket No. 2169]. The amended Plan effectively made a single change, adding provisions relating the notional, post-confirmation treatment of certain claims held by equityholders; and the confirmation order provides little guidance on what occasioned the unusual delay between verbal and written confirmation orders. In addition to potential issues relating to the drafting of those limited provisions, issues relating the closing of the Debtors' asset sale may have played a factor. At the confirmation hearing, counsel to the Debtors noted that the time sensitive sale was expected "ahead of Thanksgiving and Black Friday;" as it turned out, that closing did not occur until December 7th.

The written confirmation order comes almost three weeks after the Debtors' November 24th Plan confirmation hearing, a hearing at which Judge David Jones (after verbally confirming the Plan) continued to express exasperation with the counsel to an "Ad Hoc Equity Committee."

At that hearing, Judge David Jones volunteered himself to serve as a "gatekeeper" in respect of direct claims brought by individual shareholders if those claims were existing as at the Debtors' Chapter 11 filings. In volunteering for the role, Judge Jones noted "one small piece of the [Equity Committee's] objection" rang true, ie that individual shareholders might have valid prepetition claims for which they were receiving nothing but were nonetheless being bound by the Plan's release provisions.

The amended Plan now attaches the following language which provides the mechanics for bringing a direct claim: "Consistent with the Bankruptcy Court’s ruling on the record at the November 24, 2020 hearing, (a) the Ad Hoc Equity Committee’s Objection to Confirmation of Amended Joint Chapter 11 Plan of Reorganization of J.C. Penney Company, Inc. and its Debtor Affiliates [Docket No. 1980] shall serve as a valid opt-out of the releases contained in the Plan on behalf of all Holders of Existing Equity Interests and all such Holders of Existing Equity Interests shall be deemed to have validly opted-out of such releases; and (b) to the extent any Holder or Holders of Existing Equity Interests seek to assert direct claims held against the Debtors or any third-parties as of the Petition Date, such Holder or Holders shall file a motion with the Bankruptcy Court with a complaint attached, seeking a determination from the Bankruptcy Court as to whether such claims will be released under the Plan on the Effective Date (such motion, the ‘Direct Claims Motion’). The Bankruptcy Court shall retain exclusive jurisdiction with respect to the adjudication of the Direct Claims Motion and all parties rights are reserved with respect to the Direct Claims Motion."

On May 15, 2020, J.C. Penney Company, Inc. and 17 affiliated Debtors (NYSE: JCP; “JCPenney” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-20182. The Debtors, one of the nation’s largest apparel and home retailers, listed estimated assets of $8.6bn and estimated liabilities of $8.0bn (the Debtors' latest 10-K notes $3.758bn of long-term debt, see below).

Plan Overview

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….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.”

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 and expected recovery is 0% – 6.4% (the range depends on how the $1.0bn credit bid is split between the OpCo and PropCo bids, see more below). The claims amount consists of $1,102,153,062.50 inTerm Loan claims and $469,261,000 in First Lien Notes Claims. 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. 1984]. 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

Key Documents

The Disclosure Statement [Docket No. 1647] attaches the following documents:

• Exhibit A: Plan of Reorganization
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Corporate Organization Chart

Long-Term Debt

The Debtors most recent 10-K provides the following summary of long-term debt:

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.

Corporate Organization Chart

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