J.C. Penney has negotiated a potentially lifesaving deal to exit Chapter 11 bankruptcy protection and continue as an operating department store chain.
Simon Property Group and Brookfield Property Partners have agreed to purchase the Plano, Texas-based retailer for $1.75 billion in debt and equity.
Simon and Brookfield are landlords for 160 J.C. Penney stores. The tentative deal was announced Wednesday afternoon in U.S. Bankruptcy Court by J.C. Penney's lawyer, Josh Sussberg of Kirkland & Ellis.
Sussberg didn't provide many details, saying the letter of intent and other parts of the agreement will be filed with the bankruptcy court this morning. J.C. Penney's lenders are in agreement.
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The deal could still fall through, and it requires court approval, which the retailer intends to seek in early October.
"Time, as we've mentioned over and over again, is not our friend," Sussberg said. "It is important -- for this transaction to stay together and for all these stores to stay open and for the 70-plus-thousand employees to stay employed -- for us to move with lightning speed."
Neither Simon nor Brookfield responded to requests for comment.
"A joint purchase of bankrupt J.C. Penney would help Simon Property preserve occupancy at large anchor boxes that may be difficult to fill amid a pandemic-driven climb in vacancy," Bloomberg Intelligence analyst Lindsay Dutch wrote in a research note.
J.C. Penney filed for Chapter 11 in May, and negotiations with potential buyers dragged in recent weeks after a plan of reorganization was agreed upon with its lenders. The threat of a liquidation became more serious as no buyer emerged. J.C. Penney's lenders, led by H/2 Capital Partners, had said on Aug. 31 that they were preparing their own initial bid for the company so a court auction could proceed.
The 118-year-old J.C. Penney is being split into an operating company that will run the department stores and two real estate investment trusts. One trust will own stores, and the other will own J.C. Penney's distribution centers. The operating company will enter into lease agreements with the publicly traded trusts.
Wells Fargo has agreed to extend J.C. Penney $2 billion in revolving credit, and when the transaction is completed, the company will be left with $1 billion in cash.
More than 70,000 jobs may be saved by the transaction. The company has already closed about 150 stores as part of its reorganization, and more closings are likely. J.C. Penney entered bankruptcy with 846 stores.
Simon and Brookfield have been part of the negotiations all summer. The two landlords have been active buyers of retailers in bankruptcy. Simon was part of a group that bought Forever 21 out of Chapter 11 in February and more recently Brooks Brothers in a joint agreement with Authentic Brands.
The case is J.C. Penney Company Inc., 20-20182, U.S. Bankruptcy Court for the Southern District of Texas (Corpus Christi).
Information for this article was contributed by Maria Halkias of The Dallas Morning News, Jeremy Hill and Eliza Ronalds-Hannon of Bloomberg News and Anne D'Innocenzio of The Associated Press.