JCPenney on The Brink of Bankruptcy

As the retail store faces bankruptcy threats, JCPenney has been in talks with major lenders to secure a $450 million “debtor in possession” (DIP) loan to keep the company afloat. The DIP loan is smaller than the initial $1 billion the retailer wanted, which would have included existing debt roll over. The retail-store also plans to shut down 180 to 200 of its 846 stores which have all been impacted by the coronavirus pandemic.

There is a possibility that JCPenney would declare bankruptcy on Friday. The company also has to pay the $12 million interest it failed to pay its lenders last month, on Friday. If JCPenney fails to make the payment to lenders within a 30-day grace period, full payment of money owed before due date can be requested by the lenders. If this happens, the retailer would be forced to declare Chapter 11 bankruptcy protection.

JCPenney also has a pending missed $17 million payment on May 7, and was granted a grace period of five business days. The company currently has only $386 million in cash from February, and the $1,2 billion it got from its $2.35 billion revolving credit line from March.

If the DIP loan is successful, JCPenney plans to continue to fund its operations with the loan, after it files for bankruptcy. The loan would be divided into two parts and JCPenney would be allowed to draw the first part of $225 million on the first day. The rest of the funds will be released to the retail-store based on how its budget performs with the first part of the loan. The terms of the loan are still being worked on by the lenders, creating a better structure to protect them (the lenders) should incase the retail store doesn’t pick up in business as expected, either as a result of shoppers not showing up or the coronavirus returns.

With a lot of US states reopening or considering reopening soon, Dr. Anthony Fauci warns that the decision could create ripple effects in society. There would be more coronavirus infections and uptick cases in states that reopen too soon. Adding that the decision could cause more “suffering and death” from the coronavirus.

There is no doubt that business spaces would become major players in the increased spread of the Covid-19. While about 55% of Americans would not mind returning to their daily life, the rest of the percentage of Americans would rather not return to their daily life routine while there are still uncertainties.

This could also have an impact on retail stores like JCPenney—caught in the middle of few shoppers and threats of the Covid-19. Retail stores would have to make solid plans on how customers would visit their stores, if they decide to open.

Russell Mills, a bankruptcy attorney at Bell Nunnally law firm has said that “even if companies were to open their stores… there’s probably some parts of the economy that will never be the same.”  

J.C. Penney Files For Bankruptcy 

The company filed for bankruptcy after struggling to pay down its multibillion-dollar debt obligation. J.C Penney's bankruptcy filing in Houston includes $900 million of financing to fund the company through restructuring with an additional $450 million capital. J.C. Penney Bankruptcy filling date is May 15, 2020.