J.C. Penney announces plan to cut 1,000 jobs, gets more time from lenders in push for survival
- J.C. Penney announced Wednesday it plans to lay off about 1,000 employees.
- The company met a July 8 deadline to submit a business plan to its lenders.
- Wednesday was its original deadline to get its lenders on board with those plans, but now that deadline has been extended to July 31. Their support will help determine its survival.
J.C. Penney will lay off about a thousand employees as it hashes out a plan with its lenders to emerge from bankruptcy.
The struggling retailer filed for court protection on May 15, with roughly 860 stores and about 90,000 full-time and part-time employees. It has announced plans to close about 170 stores in recent weeks, though negotiations with landlords are ongoing. On Wednesday, it said it expects about 152 closures.
To match its shrinking store base, J.C. Penney said Wednesday it will lay off about 1,000 workers, in roles that include corporate and international positions. Those workers will receive a benefits package that includes severance and health-care coverage for eligible associates.
"These decisions are always extremely difficult, and I would like to thank these associates for their hard work and dedication," said J.C. Penney CEO Jill Soltau in a statement. "We are committed to supporting them during this period of transition."
Meanwhile, it is also continuing to negotiate a future with its lenders.
On Tuesday, J.C Penney confirmed in a court filing it had struck a deal with its lenders to push back a key deadline originally imposed on it as part of its bankruptcy financing. According to the terms of its debtor-in-possession financing agreement, it had to submit a confidential business plan to its lenders by July 8 and get two-thirds of them on board by Wednesday. If it missed those deadlines, it would have had to begin the process of selling off its assets.
Now, after submitting its business plan on time, J.C. Penney has until July 31 to review the plan with its lenders and evaluate potential buyers for the business. That gives it about two more weeks to work out a deal to help it avoid liquidation.
According to the confidential plan, it wants to place roughly 160 of its remaining stores into a real estate investment trust to collect checks from the retail business, people familiar with the situation said. Doing so gives investors the chance to invest in a company's best real estate while keeping its underlying retail business separate.
The people requested anonymity because the plans are confidential.
J.C. Penney has said in court documents that it could sell as much as a 35% stake in the newly created REIT to a third-party investor to raise cash or to provide additional funding for the REIT.
It has been in talks with multiple suitors for all or parts of its business. They include private equity firm Sycamore Partners, which owns department store Belk, and a partnership between Simon Property Group, Brookfield Properties and Barneys New York parent company Authentic Brands, people familiar with the situation have told CNBC.
Simon, the biggest mall owner in the country, has a J.C. Penney store in about 50% of its U.S. malls, based on one analysis. A REIT carve-out would allow Simon to either buy the REIT or invest in the stores that are already in its malls without having to invest in the retail business.
Still, the leases in the REIT are a liability for any investor, since they are dependent on the ability of the tenants to pay the rent. Shares of the REIT that Sears hived off in 2015, Seritage Growth Properties, has fallen more than 74% this year, as investors have worried it may not get enough capital to convert onetime Sears stores into new properties.
And as the pandemic puts pressure on the real estate and retail industry, shares of Macerich, Simon, CBL and Washington Prime Group have all tumbled 50% or more this year. CBL is in the midst of talking with its own lenders after missing debt payments and has warned that it may not be able to continue operating.
J.C. Penney declined to comment on the contents of the confidential plan. Sycamore Partners and Simon Property Group declined to comment.