Talks to find a buyer for J.C. Penney have hit a "stalemate," and time is running out to keep the department store chain alive, according to the company's attorney.
But to avoid a liquidation before time it up, Penney's top lenders, including H/2 Capital Partners, are now set to make a credit bid to own the retailer as a stand-alone company, attorney Joshua Sussberg of Kirkland & Ellis said during a Monday bankruptcy court hearing. A Sept. 10 deadline has been set to reach an agreement. Sussberg said the goal is for a transaction to be completed within 30 days.
"Our lenders are no longer going to be held hostage in negotiations with third parties," Sussberg said. "While it is possible that one of the bidders comes back into the transaction, we can no longer stand idly by and allow for negotiating postures to stand in the way of 70,000 jobs and our vendor base."
Sussberg added that Penney is set to close a number of additional stores, as talks with bidders have fallen through. The department store chain last month announced it would be laying off roughly 1,000 employees, as it moved forward with shutting about 150 locations across the country. When it filed for bankruptcy, it was still operating about 860 stores.
"Several locations that were on our original closing list but were removed ... because of negotiations ... will be closed promptly," Sussberg said. A list of those locations has not yet been released.
When asked by a shareholder why Penney should be allowed to continue trying to work with lenders, U.S. Bankruptcy Judge David Jones said that if he didn't, "every store will close ... it will be done and over."
"I have 70,000 people who need a job," Jones said. "I have stores in small towns that don't have alternatives. ... The alternative is death of an entity."
Its restructuring process is still dragging on, hitting a snag over the weekend when a bidder failed to respond to a proposal made in good faith, Kirkland's Sussberg said.
At the end of July, the attorney had said during a virtual hearing that Penney was moving forward with a sale set to be completed by this fall. A liquidation was "not in the cards," he said at the time. The plan was to split Penney into an operating company and two property holding companies, one with the company's distribution centers, that would be structured like real estate investment trusts.
The three bidders for Penney had included the private equity firm Sycamore, a duo of Simon and Brookfield, and Saks Fifth Avenue owner Hudson's Bay Co., according to a person familiar with these discussions.
Representatives from Simon, Brookfield and Hudson's Bay did not immediately respond to CNBC's requests for comment. Sycamore declined to comment.
Simon has already scooped up two other retailers in bankruptcy during the pandemic, with the help of the apparel licensing firm Authentic Brands Group. Together, they've acquired the men's suit maker Brooks Brothers and the denim retailer Lucky Brand. Simon Property CEO David Simon has said the company is on the hunt to do more deals to make money and preserve recognized brands.
Sussberg said Monday that Penney had been furthest along in its talks with the bidders that were the landlords for more than 160 Penney department stores, not naming Simon and Brookfield directly. But as those have hit a wall and vendors are waiting with "baited breath" to see if the company will make it to the holidays, Penney is proposing a stand-alone transaction, he said.
Dozens of retailers, including J.Crew and other department store chains Neiman Marcus and Lord & Taylor, have filed for bankruptcy during the Covid-19 crisis. Lord & Taylor announced last week its plans to liquidate its remaining 38 shops.