|
Item 1.01.
|
Entry into a Material Definitive Agreement.
|
The information set forth below in Item 1.03 in this Current Report on Form 8-K under the captions “Restructuring Support Agreement” and “Debtor-in-Possession Commitment Letter” is hereby incorporated by reference in this Item 1.01.
|
Item 1.03.
|
Bankruptcy or Receivership.
|
Voluntary Petition for Reorganization
On May 15, 2020 (the “Petition Date”), J. C. Penney Company, Inc. (“J. C. Penney” or the “Company”) and certain of its subsidiaries (together with J. C. Penney, the “Debtors”) commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Bankruptcy Court has granted a motion seeking joint administration of the Chapter 11 Cases under the caption In re: J. C. Penney Company, Inc., et al., Case No. 20-20182 (DRJ).
The Debtors will continue to operate their businesses as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code and the orders of the Bankruptcy Court. To ensure their ability to continue operating in the ordinary course of business, the Debtors have filed with the Bankruptcy Court motions seeking, and the Bankruptcy Court has entered, a variety of “first day” relief, including authority to access cash collateral, pay employee wages and benefits, honor customer programs and pay vendors and suppliers in the ordinary course for all goods and services provided after the Petition Date.
On May 16, 2020, the Bankruptcy Court entered the Order Approving Notification and Hearing Procedures for Certain Transfers of and Declarations of Worthlessness with Respect to Common Stock, Docket No. 104 (the “Order”). The Order is designed to assist the Debtors in preserving certain of their tax attributes by establishing, among other things, the procedures (including notice requirements) that certain stockholders and potential stockholders must comply with regarding transfers of, or declarations of worthlessness with respect to, J. C. Penney’s common stock, as well as certain obligations with respect to notifying the Debtors with respect to current stock ownership (the “Procedures”). The terms and conditions of the Procedures were immediately effective and enforceable upon entry of the Order by the Bankruptcy Court. Any actions in violation of the Procedures (including the notice requirements) are null and void ab initio, and (a) the person or entity making such a transfer will be required to take remedial actions specified by the Debtors to appropriately reflect that such transfer of J. C. Penney’s common stock is null and void ab initio and (b) the person or entity making such a declaration of worthlessness with respect to J. C. Penney’s common stock will be required to file an amended tax return revoking such declaration and any related deduction to reflect that such declaration is void ab initio. The foregoing description of the Order is not complete and is qualified in its entirety by reference to the Order, a copy of which is attached to this Current Report on Form 8-K as Exhibit 4.1 and is hereby incorporated by reference in this Item 1.03.
Restructuring Support Agreement
On May 15, 2020, J. C. Penney and its subsidiaries (together with J. C. Penney, the “Company Parties”) entered into a Restructuring Support Agreement (together with all exhibits and schedules thereto, the “RSA”) with members of an ad hoc group of lenders and noteholders (the “Consenting Stakeholders”) under (i) the Amended and Restated Credit and Guaranty Agreement, dated as of June 23, 2016 (as amended, supplemented or otherwise modified from time to time, the “Term Loan Credit Agreement”), by and among, inter alios, J. C. Penney Corporation, Inc. (“JCP”), as borrower, certain of the Company Parties, as guarantors, JPMorgan Chase Bank, N.A., as administrative agent, and the lenders party thereto from time to time, and (ii) JCP’s 5.875% Senior Secured Notes due 2023 (the “First Lien Notes”). In the aggregate, the Consenting Stakeholders hold approximately 70 percent of the Debtor’s first lien debt. Capitalized terms used but not otherwise defined in this “Restructuring Support Agreement” section of this Current Report on Form 8-K have the meanings given to them in the RSA.
The RSA contemplates a restructuring process that will establish both a financially sustainable operating company (“New JCP”) and a real estate investment trust (the “REIT”). The contemplated restructuring process includes (i) the commencement by the Debtors of voluntary cases under chapter 11 of the Bankruptcy Code, (ii) certain of the Consenting Stakeholders and/or their affiliates providing, on a committed basis, the debtor-in-possession financing on the terms set forth therein (which is described below under “Debtor-in-Possession Commitment Letter”), (iii) the formation and implementation of the REIT, (iv) the implementation of exit financing for both New JCP and the REIT, (v) the issuance of New JCP common stock, and (vi) the issuance of equity interests in the REIT, each on the terms set forth in the RSA.
The RSA contains various milestones, including the following: (a) no later than 18 days after the Petition Date, the Bankruptcy Court shall have entered the DIP Order, (b) no later than June 15, 2020, the Debtors will have delivered a Lease Optimization Plan and an Owned Real Estate Optimization Plan, each in form and substance acceptable to the Required Consenting First Lien Lenders, to the Consenting First Lien Lenders, (c) no later than July 8, 2020, the Company Parties shall have delivered a Business Plan (consistent with the acceptable Business Plan Parameters) to the Consenting First Lien Lenders and DIP Lenders, and no later than July 14, 2020, the Company Parties and the Required Consenting First Lien Lenders shall have agreed on an acceptable Business Plan, (d) no later than 130 days after the Petition Date, the Bankruptcy Court shall have entered an order approving the Disclosure Statement or acceptable bidding procedures, (e) no later than 160 days after the Petition Date, the Bankruptcy Court shall have either entered the Confirmation Order or approved an acceptable sale or sales, and (f) no later than November 15, 2020, the Plan Effective Date shall have occurred.
The RSA also provides that the RSA may be terminated by the Required Consenting First Lien Lenders or the Company Parties (or by an individual Consenting First Lien Lender as to itself only) upon the occurrence of certain events set forth therein. In particular, the Company Parties may terminate the RSA in the event the board of directors, board of managers or such similar governing body of any Company Party determines, after consulting with counsel, (i) that proceeding with any of the transactions described therein would be inconsistent with the exercise of its fiduciary duties or applicable law or (ii) in the exercise of its fiduciary duties, to pursue an Alternative Restructuring Proposal.
Although the Company Parties intend to pursue the restructuring contemplated by the RSA, there can be no assurance that the Company Parties will be successful in completing a restructuring or any other similar transaction on the terms set forth in the RSA or at all.
The foregoing description of the RSA is not complete and is qualified in its entirety by reference to the RSA, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.1 and is hereby incorporated by reference in this Item 1.03.
Debtor-in-Possession Commitment Letter
On May 15, 2020, prior to commencement of the Chapter 11 Cases, JCP entered into a commitment letter (together with all exhibits and schedules thereto, the “Commitment Letter”) with certain of the Consenting Stakeholders and/or their affiliates (the “Commitment Parties”), pursuant to which, and subject to the satisfaction of certain customary conditions, including the approval of the Bankruptcy Court (which has not been obtained at this time), the Commitment Parties committed to provide a non-amortizing senior secured priming multi-draw delayed draw debtor-in-possession term loan facility (the “DIP Facility”) with a maximum funded principal amount equal to $450 million in new money loans and a roll-up of $450 million of term loans issued under the Term Loan Credit Agreement to be funded in multiple borrowings as follows: (i) $225 million made not later than one business day following the entry of the DIP Order (as defined in the Commitment Letter), and (ii) the remainder made available following the entry of the DIP Order on July 15, 2020, subject to satisfaction of certain conditions precedent.
The DIP Facility is expected to include conditions precedent, representations and warranties, affirmative and negative covenants and events of default customary for financings of this type and size. The proceeds of all or a portion of the proposed DIP Facility may be used by the Debtors (as defined in the Commitment Letter) to (i) pay certain costs, fees and expenses related to the Chapter 11 Cases, (ii) make payments in respect of certain “adequate protection” obligations, and (iii) fund working capital needs and expenditures of the Company Parties, in all cases subject to the terms of the credit agreement governing the DIP Facility (the “DIP Credit Agreement”) and applicable orders of the Bankruptcy Court. The Debtors intend to use cash on hand and cash from the results of operations to fund the working capital needs of the business prior to the entry of the DIP Order.
The foregoing description of the proposed DIP Facility and the Commitment Letter does not purport to be complete and is qualified in its entirety by reference to the Commitment Letter, a copy of which is attached to this Current Report on Form 8-K as Exhibit 10.2 and is hereby incorporated by reference in this Item 1.03, and to the DIP Credit Agreement, as may be approved by the Bankruptcy Court.
|
Item 2.04.
|
Triggering Events that Accelerate or Increase a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.
|
The filing of the Chapter 11 Cases constitutes an event of default that accelerated obligations under the following debt instruments and agreements (the “Debt Instruments”):
|
|
•
|
Indenture, dated as of June 23, 2016, by and between JCP, the guarantors party thereto and Wilmington Trust, National Association, as trustee, which governs the First Lien Notes;
|