JCPenney is getting ready to file for chapter safety as quickly as subsequent week with plans to completely shut a couple of quarter of its roughly 850 shops, changing into the most recent main US retailer to succumb to fallout from the coronavirus outbreak, based on folks aware of the matter.
A chapter submitting would cap a protracted decline for the 118-year-old division retailer chain, which struggled with a virtually $four billion debt load and competitors from e-commerce corporations and low cost brick-and-mortar retailers even earlier than the pandemic’s onset.
The Plano, Texas-based firm, which employs almost 85,000 folks, is in discussions with collectors for a so-called debtor-in-possession mortgage to bolster its funds whereas it navigates chapter proceedings, the sources mentioned. The mortgage may complete $400 million to $500 million, among the sources mentioned.
The timing of a chapter submitting may slip relying on how a lot time it will get from collectors, the sources mentioned. JCPenney skipped a $17 million debt fee Thursday and solely has 5 days to make good on it earlier than defaulting. A 30-day grace interval on a $12 million fee the corporate skipped April 15 ends subsequent Friday.
JCPenney has not made a remaining choice on find out how to tackle its strained funds, and can be contemplating alternate options that embrace negotiating a cope with collectors exterior of chapter court docket or acquiring further financing, the sources mentioned. The sources spoke on situation of anonymity to debate confidential deliberations.
JCPenney declined to remark.
Whereas JCPenney goals to reorganize and emerge from chapter safety, it plans to completely shutter roughly 200 shops, a determine that might fluctuate relying on negotiations with collectors, the sources mentioned.
Below one plan being mentioned, JCPenney would emerge from chapter as two separate firms, the sources mentioned.
One would personal among the firm’s actual property and function a landlord to the opposite entity working the retailer’s enterprise, they mentioned. Collectors, a lot of them Wall Road hedge funds, would management the companies in alternate for forgiving debt, they mentioned.
JCPenney’s on-line gross sales haven’t been sufficient to compensate for the numerous losses it has incurred whereas retaining shops closed throughout the US in response to lockdowns geared toward curbing unfold of the coronavirus.
Whereas the corporate has sufficient money to outlive within the coming months, it faces a $105 million debt fee due in June and about $300 million of annual curiosity bills. Greater than $2 billion of debt comes due in 2023.
JCPenney Chief Government Jill Soltau instructed prospects in a Thursday e-mail that shops have began to steadily reopen with precautions similar to plexiglass shields at registers and restricted crowds.
Retailers are bearing a big brunt of the financial fallout from the pandemic as gross sales all however evaporate. Simply this week, luxurious division retailer chain Neiman Marcus Group and clothes retailer J.Crew Group Inc filed for chapter safety.
In April, the US economic system misplaced 20.5 million jobs, the steepest plunge because the Nice Melancholy, the Labor Division reported on Friday.
JCPenney opened its first retailer in Wyoming in 1902 and known as it “The Golden Rule,” a reference to what the retailer noticed as its normal for customer support, based on its Website.
The e-commerce revolution that took maintain within the 21st century eroded JCPenney’s enterprise a lot because it did different conventional retailers’ gross sales. The corporate now additionally faces fierce competitors from low cost chains together with TJX Cos Inc.’s Marshalls and T.J. Maxx chains.
JCPenney spent years making an attempt to get well from a failed transformation spearheaded by former CEO Ron Johnson, the one-time pioneer of Apple’s retail shops.
Johnson launched costly renovations of JCPenney places and eradicated coupons, leading to a buyer backlash that led to plunging gross sales. He was changed in 2013, and a revolving door of executives adopted earlier than Soltau took the helm in late 2018.
JCPenney had not too long ago made some strides in its turnaround try, assembly or exceeding steerage on monetary aims for 2019 and enhancing gross sales at some shops.
Earlier than the pandemic, JCPenney hoped to influence collectors to offer it extra monetary respiratory room, as Soltau tried to forge a turnaround targeted on the corporate’s roots as a vendor of inexpensive attire for center class households.
However discussions with collectors earlier this yr didn’t win JCPenney any concessions, the sources mentioned. The coronavirus outbreak prompted the corporate to attract $1.25 billion from its revolving credit score line and ultimately begin making chapter preparations.