J.C. Penney lenders plan takeover after talks with Simon, other bidders stall

Simon Headquarters

J.C. Penney Co.’s lenders plan to take ownership of the retailer after talks with potential outside buyers—including Indianapolis-based Simon Property Group—have so far failed, an attorney for the company said in a bankruptcy court hearing Monday.

“We’ve hit a stalemate,” the attorney, Joshua Sussberg of Kirkland & Ellis LLP, said in the hearing. “Our lenders will no longer be held hostage” by outside bidders, he said.

The company will continue exploring outside bids, Sussberg said, but the retailer’s advisers will now work with lenders to negotiate a debt-for-equity swap in the next 10 days, he said.

J.C. Penney filed for bankruptcy May 15, part of a wave of already-struggling merchants undone as the novel coronavirus shut stores and clipped spending. It announced a plan to spin off some of its stores into a real estate investment trust that lenders would control and sell the retail business to the highest bidder.

Advisers to the company boasted throughout the process of robust bidder interest, and parties including Simon, Sycamore Partners and Saks Fifth Avenue owner Hudson’s Bay Co. have weighed buying the chain.

The company still hopes to preserve jobs in the new deal with lenders, Sussberg said. “We are going to do everything humanly possible to ensure that J.C. Penney will be around for the foreseeable future,” he said.

People familiar with the matter told Bloomberg in June that Simon Property, Brookfield Property Partners and Authentic Brands Group were in talks to buy J.C. Penney. Simon and Brookfield are the two largest shopping mall landlords.

For the landlords, buying J.C. Penney would ensure the survival of one of their most ubiquitous tenants amid a wave of retail distress that has seen thousands of stores close permanently. That’s in addition to the pandemic lockdown that closed most retailers for months nationwide.

Authentic teamed up with Simon and Brookfield to buy teen clothing chain Forever 21 out of bankruptcy earlier this year. Simon and Authentic also teamed to buy Brooks Brothers.

Authentic also owns Aeropostale after teaming up with the mall landlords to buy that brand out of bankruptcy in 2016. Its growing portfolio could be a boon to J.C. Penney if licensed product from those retailers were added to the department store’s lineup.

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