US shopping center owners Simon Property Group and Brookfield Property Partners are close to completing a $ 800 million deal to save JC Penney department store chain from bankruptcy, avoid liquidation and save some 70,000 jobs and 650 stores, Joshua Sassberg of law firm Kirkland & Ellis said Wednesday.
Simon and Brookfield will pay about $ 300 million in cash and take on $ 500 million in debt, Sassberg said during a court hearing.
Wells Fargo also agreed to provide Penney with a $ 2 billion revolving loan upon completion of the transaction, leaving the retailer with $ 1 billion in cash, he said. Penny plans to get bankruptcy judge approval for this rescue deal early next month.
Meanwhile, the hedge funds and private equity firms that financed Penny’s bankruptcy are set to acquire ownership of some of the retailer’s stores and distribution centers in exchange for forgiving part of Penny’s $ 5 billion debt burden. Penney’s lenders, led by H / 2 Capital Partners, will own the assets in two different real estate investment funds, or REITs, Sassberg said.
Hit hard coronavirus pandemic Having absorbed excessive debt, Penny filed for Chapter 11 bankruptcy protection in May. At the time, he had about 850 locations.
Dozens of other retailers, including department store chains Neiman Marcus, Stage Stores and Lord & Taylor, filed for bankruptcy protection during the Covid-19 crisis. Some retailers have not found buyers who could save them. Lord & Taylor, the country’s oldest department store operator, and Pier 1 Imports home furnishings chain are in the process of liquidation.
Negotiations to save Penny have been going on for weeks. During a hearing on August 31, Kirkland & Ellis’ Sussberg said negotiations with the highest bidder, which included Penny’s homeowners, had come to nothing. Instead, Penny’s lenders were about to prepare a loan application to own the retailer as a separate company, he said it was about time.
Penney’s revenues and market value have declined over the years, with shoppers visiting its stores less often and buying online instead. The company’s net sales in 2019 were $ 10.7 billion, up from $ 12.6 billion in 2015.
Sassberg also previously said that Penny’s vacant property was valued at $ 1.4 billion when the lights are onand $ 704 million in the dark. The retailer’s real estate values have dropped over time, especially during the pandemic, as there is less and less desire to own bulky anchor sites in shopping centers.
Any deal between Simon and Brookfield is still subject to court approval and competing proposals.
Simon has already made deals this year rescue men’s suit manufacturer Brooks Brothers and denim retailer Lucky Brand from bankruptcy, having teamed up with licensing firm Authentic Brands Group to do so. He had previously also teamed up with ABG and Brookfield to rescue Forever 21. Brookfield said in May that it was plans to spend $ 5 billion to rescue retailers hit by the pandemic…
Analysts believe that, among a number of reasons, mall owners may try to save Penny to prevent the appearance of several empty department stores in shopping centerswhich could potentially lead to so-called joint lease clauses that allow other retailers in the mall to renegotiate their own leases or be waived. The Penney ownership would also give Simon and Brookfield the opportunity to more easily refocus their properties if some of the Penney stores in their malls closed.
Representatives for Simon and Brookfield did not immediately respond to CNBC’s requests for comment.
