J.C. Penney ‘to file for bankruptcy as soon as NEXT WEEK and permanently close a quarter of its stores’
J.C. Penney is preparing to file for bankruptcy protection as soon as next week with plans to permanently close a quarter of its 850 stores, according to reports.
The debt-laden chain looks set to become the latest major US retailer to succumb to fallout from the coronavirus outbreak as stores across the US were closed under lockdown rules.
The company, which employs nearly 85,000 people, is said to be in discussions with creditors for a ebtor-in-possession loan to bolster its finances while it navigates bankruptcy proceedings.
The loan could total between $400 million and $500 million, sources told Reuters.
J.C. Penney skipped a $17 million debt payment Thursday and only has five days to make good on it before defaulting.
A 30-day grace period on a $12 million payment the company skipped on April 15 ends next Friday.
A bankruptcy filing would cap a long decline for the 118-year-old department store chain, which struggled with a nearly $4-billion debt load and competition from online retailers and discount chains even before the pandemic.
J.C. Penney has not made a final decision on how to address its strained finances, and is also considering alternatives that include negotiating a deal with creditors outside of bankruptcy court or obtaining additional financing, the sources said.
J.C. Penney declined to comment.
Sources said the company plans to permanently shutter around 200 stores while it tries to reorganize and emerge from bankruptcy protection.
One plan being discussed would see J.C. Penney emerge from bankruptcy as two separate companies.
One firm would own some of the company’s real estate and serve as a landlord to the other entity operating the retail business, sources said.
Creditors, many of them Wall Street hedge funds, would control the businesses in exchange for forgiving debt.
J.C. Penney’s online sales have not been enough to compensate for the significant losses it has incurred while keeping stores closed across the United States in response to lockdowns aimed at curbing spread of the coronavirus.
While the company has enough cash to survive in the coming months, it faces a $105 million debt payment due in June and about $300 million of annual interest expenses.
More than $2 billion of debt is due to be repaid in 2023.
J.C. Penney opened its first store in Wyoming in 1902 and called it “The Golden Rule,” a reference to what the retailer saw as its standard for customer service.
The e-commerce revolution that took hold in the 21st century eroded its business and it also faces fierce competition from discount chains including Marshalls and T.J. Maxx.
J.C. Penney spent years trying to recover from a failed transformation spearheaded by former CEO Ron Johnson, the one-time pioneer of Apple retail stores.
Johnson launched expensive renovations of stores and eliminated coupons, resulting in a customer backlash that led to plunging sales.
He was replaced in 2013, and a revolving door of executives followed before current CEO Jill Soltau took the helm in late 2018.
On Thursday she gave no hint of the trouble when she emailed customers to say stores had started to gradually reopen with precautions such as plexiglass shields at registers and limited crowds.
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Retailers are bearing a significant brunt of the economic fallout from the pandemic as sales all but evaporate.
Just this week, luxury department store chain Neiman Marcus and clothing retailer J. Crew filed for bankruptcy protection.
In April, the US economy lost 20.5 million jobs, the steepest plunge since the Great Depression.
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