J.C. Penney is in talks to secure financing for bankruptcy as the coronavirus pandemic has devastated the American retail industry, people familiar with the matter tell CNBC.
The Plano, Texas-based retailer skipped a $12 million interest payment on April 15, starting the clock on a 30-day grace period that could force it to file for bankruptcy as soon as May 15. https://tpc.googlesyndication.com/safeframe/1-0-37/html/container.html
If J.C. Penney hits the May 15 deadline, it could opt to make the interest payment it owes, but the retailer skipped another $17 million payment Thursday night. The more money it has in bankruptcy, the more ability it has to execute its plan and survive.
J.C. Penney is negotiating with its first lien lenders, including H2 Capital, a “debtor in possession” loan of around to $300 million to $500 million, some of the people familiar with the matter said. It had originally hoped for as much as $1 billion in DIP, though that would have included existing debt being rolled over.
The company has also spoken to larger banks about bankruptcy financing, but DIP funds have been harder to come by than for other recent large-scale retail bankruptcies. While large banks contributed DIP to retailers like Toys R Us and Sears, they are less willing to extend such financing efforts now, particularly when they are not existing creditors, people familiar with the situation tell CNBC. As retailers from Macy’s to Nordstrom look to draw down their credit lines, banks must prioritize so that they are lending to those they are most confident can survive.
In its favor, J.C. Penney has an iconic brand and real estate throughout the country. It is buffered by $386 million of cash it had on hand as of February, as well as roughly $1.25 billion it drew from a credit line in March.
The size and nature of DIP financing that J.C. Penney is able to secure may set the tone for additional retail bankruptcies that are expected to come even as states begin to reopen their economies. Preppy retailer J. Crew and high-end department store Neiman Marcus filed for bankruptcy this week. Many more, including rural retail chain owner Stage Stores, are expected to follow suit. https://tpc.googlesyndication.com/safeframe/1-0-37/html/container.html
The pandemic has put the value of assets that retailers have typically used as collateral for financing, such as inventory, into question. There is uncertainty about when stores will reopen to the public and how much stores will compete on discounts to lure back shoppers.
The people requested anonymity because the information is confidential. A spokesperson for J.C. Penney declined to comment.