Retail chain JCPenney filed for Chapter 11 bankruptcy in Texas on Friday evening, under which several billion dollars of debt will be removed from the balance sheet, the company said.
The bankruptcy is part of a restructuring agreement with lenders holding 70% of the company’s first-line debt, the company said.
JCPenney was among the most troubled retailers headed into the pandemic, and was viewed by the major credit rating agencies as having a high probability of defaulting on its debt.
“Until this pandemic struck, we had made significant progress rebuilding our company under our Plan for Renewal strategy—and our efforts had already begun to pay off,” said Jill Soltau, the company’s CEO, in a statement.
“While we had been working in parallel on options to strengthen our balance sheet and extend our financial runway, the closure of our stores due to the pandemic necessitated a more fulsome review to include the elimination of outstanding debt,” she said.
Earlier on Friday, JCPenney made an interest payment of about $17 million on its loan, but the $12 million bond payment that was due by midnight remained at large.
In tandem with the bankruptcy, the company said it will explore additional opportunities such as a third-party sale. The retailer owns a number of private label brands such as Liz Claiborne and St. John’s Bay that are potentially valuable assets. It will also reduce its store count, though it has yet to reveal the extent of those closings.
JCPenney has about $500 million in cash on hand as of the filing, it said, and has received commitments for $900 million in debtor-in-possession (DIP) financing from its existing first-lien lenders, which includes $450 million of new money.
The financing, which is pending court approval, is expected to provide the company with sufficient cash to fund operations as well as the restructuring.
The department store has a storied history that goes back some 118 years. It was founded in 1902 by James Cash Penney in Kemmerer, Wyoming under the original banner The Golden Rule.
It expanded across the Midwest and became the department store of choice for many middle-class families.
For a number of decades, JCPenney maintained its relevancy selling household names such as Levi’s jeans via its stores and catalogue. A declining middle class, however, and the rise of both online and discounters from Walmart to T.J. Maxx made it difficult for the retailer to stand out, as shoppers either sought convenience, value or the treasure hunt other destinations offered.
It’s by no means the end for JCPenney, but its revival even with debt reduced is uncertain.
Former Apple retail head Ron Johnson, who is given credit for the success of the consumer electronic giant’s stores, was brought on board as CEO in 2011 by activist shareholder Bill Ackman to turn the business around.
He plowed hundreds of millions into the makeover.
But removing popular private label brands such as St. John’s Bay alienated existing customers, while failing to attract enough new customers with the introduction of hipper labels such as Joe Fresh proving a costly misstep.
And then there was the debacle over Martha Stewart Living, another brand Johnson brought in. It led to a lawsuit from rival Macy’s, which had already inked an exclusive merchandise agreement with the label. Macy’s sued JCPenney for infringing on that deal, though the two parties ended up settling out of court.
There was also the confusion over the company’s rebranding attempts, with three different logos under three different CEOs in as many years. In 2010, it was a maroon square with the name spelled out in white, which then morphed into a red box with the initials JCP slightly of-center in 2011, and then finally in 2012, a square outlined in red, with the JCP we’ve become familiar with in a small blue box in the upper corner.
Much of the debt on JCPenney’s balance sheet is the result not only of the attempt to refresh the department store chain’s image, but to also provide it with much-needed capital in the aftermath of the misadventure in order to keep the chain afloat.
Today, JCPenney has some 850 locations in the U.S. and Puerto Rico.