businessRetail

J.C. Penney to reopen 153 stores as clock threatens its bankruptcy reorganization

In the chain’s first week in bankruptcy, Amazon and others may be circling its assets.

J.C. Penney is reopening stores in Texas, Florida, Indiana and Ohio on Wednesday as the clock is ticking in the largest bankruptcy filed since the coronavirus pandemic shut down the economy.

Details have emerged about the chain’s difficult path for exiting Chapter 11. Penney will attempt to spin off its real estate into a separate company and permanently close stores while it’s still trying to reopen locations.

Two big deadlines loom if Penney is going to exit in November, the date it put on a proposed timeline.

But time is limited to meet various steps, and triggers built into the lending agreements could convert the bankruptcy to a liquidation, on either July 14 or Aug. 15.

By mid-July, Penney has to persuade the lenders financing its bankruptcy to give it the next $225 million of the $450 million of debtor-in-possession financing that it secured and that is required to begin a court-led restructuring. The lenders will release that money if they support Penney’s business plan to exit bankruptcy, which has to be filed in June.

Then, in August, if Penney doesn’t have the support of lenders to finance the retailer when it leaves bankruptcy, the agreement calls for the bankruptcy to convert to a liquidation.

The company’s biggest lenders include H/2 Capital Partners, Sixth Street Partners, KKR & Co. and Ares Management Corp. Some of those investors overlap with the leveraged buyouts of other retailers that ended poorly over the past decade.

Until earlier this month, Sixth Street was funded by TPG, which was part of the group that sold Neiman Marcus in a 2013 leveraged buyout of the Dallas-based luxury retailer by a group led by Ares. Neiman Marcus filed for bankruptcy this month, as did another TPG-led leveraged buyout target, J.Crew.

H/2 Capital is a hedge fund that invests in real estate. KKR led the leveraged buyout of Toys R Us, which ended up liquidating in 2018.

Penney is working on its business plan, which hasn’t yet been filed with the court, but a preliminary version was filed Monday with the Securities and Exchange Commission. Penney said in that filing that it could permanently close as many as 242 of its 846 stores. Most of those locations, 192 stores, are in leased space; the remaining 50 are in buildings owned by Penney.

Before the pandemic, the proposed go-forward fleet of 604 stores had higher average sales and higher profitable sales.

Also, Penney proposes in its plan to sell a 35% stake in a separate new real estate company to raise cash. That’s actually part of its lending agreement.

It also said it would sell and lease back distribution centers to raise more cash. The plan calls for Penney to issue new stock in addition to the equity in the real estate investment trust.

Penney owns a lot of real estate, and that property is probably drawing interest. Some stores in dying malls are finding new life as fulfillment centers for online retailers.

Amazon, which has already converted some former mall stores into online operations, is looking at Penney, according to a report Monday in Women’s Wear Daily. Penney also has 11 distribution centers that would be in demand by lots of retailers, not just Amazon, as the industry makes a secular shift online.

Joshua Sussberg, a Penney attorney, said during a hearing Saturday afternoon in bankruptcy court that the company would work around the clock to deal with all the issues.

“I am very worried about this, and why I’m having a hearing on a Saturday,” U.S. Bankruptcy Judge David Jones said during the webcast hearing with 300 people on the line. The judge approved customary first-day motions that allowed Penney to continue paying employees, utilities and other operating expenses, including the honoring of gift cards.

Jones, who is also presiding over the Neiman Marcus bankruptcy case in Houston, reminded the lawyers, management, advisers, lenders and creditors on the call that “retail bankruptcies have to move quickly regardless of the strength of the debtor.”

“I want to see this work. You have 85,000 people [Penney employees] depending on all of your skill sets and talents,” Jones said.

A total of 153 of Penney’s 846 stores will be open this week, including 34 in Texas, 12 in Florida, 7 in Indiana and 11 in Ohio.

A few more Dallas-Fort Worth stores will open but not all. Stores will open Wednesday in Frisco, Burleson, Mesquite, Rockwall, Sherman and Waxahachie. Arlington, Fairview and Alliance Town Center in Fort Worth have been open since earlier this month.

Penney’s stores are opening with reduced hours: noon to 7 p.m. Monday through Saturday and 11 a.m. to 6 p.m. Sunday. Penney has added pandemic-related new practices and training, including additional cleaning and plexiglass shields.

Penney stores that are opening

Here’s the list of Texas stores reopening Wednesday:

Longview Mall, 3550 McCann Rd, Longview

South Plains Mall, 6002 Slide Rd-Bldg A, Lubbock

Ingram Park Mall, 6301 NW Loop 410, San Antonio

Cielo Vista Mall, 8401 Gateway Blvd W, El Paso

Meyerland Plaza, 730 Meyerland Plaza Mall, Houston

South Park Mall, 2418 SW Military Dr, San Antonio

River Hills Mall, 200 Sidney Baker St S (Hwy 16), Kerrville

La Palmera Mall, 5488 S Padre Island Dr, Ste 4000, Corpus Christi

Parkdale Mall, 6455 Eastex Frwy, Beaumont

Sunset Mall, 6000 Sunset Mall, San Angelo

Richland Mall, 6001 W Waco Dr, Waco

Barton Creek Square, 2901 S Capitol of Texas Hwy, Austin

Mall De Las Aguilas, 455 S Bibb St, Eagle Pass

Killeen Mall, 2100 S W S Young Dr, Ste 2000, Killeen

Valle Vista Mall, 2006 S Expy 83, Harlingen

Victoria Mall, 8106 N Navarro St, Victoria

Post Oak Mall, 1500 Harvey Rd, College Station

Town East Mall, 6000 Town East Mall, Mesquite

First Colony Mall, 16529 Southwest Frwy, Sugar Land

Woodlands Mall, 1201 Lake Woodlands Dr, Ste 500, The Woodlands

Stonebriar Mall, 2607 Preston Rd, Frisco

Rolling Oaks Mall, 6909 N Loop 1604 E, San Antonio

Burleson Town Center, 877 Ne Alsbury Blvd, Burleson

Baybrook Mall, 100 Baybrook Mall, Friendswood

The Rim, 17710 La Cantera Pkwy, San Antonio

Memorial City, 300 Memorial City Way, Houston

The Crossing At 288, 2500 Smith Ranch Rd, Pearland

Tech Ridge Center, 12351 N I-35, Austin

Southpark Meadows, 9500 S I-35, Ste H, Austin

Plaza At Rockwall,1015 E I-30, Rockwall

Waxahachie Crossing, 1441 N Hwy 77, Waxahachie

Brazos Town Commons, 24201 Brazos Town Crossing, Rosenberg

Sherman Town Center, 610 Graham Dr, Sherman

Stonecreek Crossing, 800 Barnes St, San Marcos

These Texas locations are offering contact-free curbside pickup only:

North East Mall, 1101 Melbourne Dr, Hurst

La Plaza, 2200 S. 10th St, McAllen

Music City Mall, 4101 E. 42nd St., Odessa

Broadway Square Mall, 4401 S. Broadway, Tyler

Twitter: @MariaHalkias

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Maria Halkias, Staff writer. Maria Halkias has covered the retail scene for The Dallas Morning News since 1993.

mhalkias@dallasnews.com /maria.halkias @MariaHalkias Instagram Iconmariahalkias LinkedIn Iconhttps://www.linkedin.com/in/MariaHalkias
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