J.C. Penney Shareholders Lose Bid to Delay Sale
J.C. Penney took another hurdle to complete the sale of the company this month.
At a hearing on Friday, U.S. District Judge Nelva Gonzales Ramos denied a motion by the ad hoc committee of shareholders to suspend or delay the sale of the retail store while shareholders appeal against the approval of the deal by a Texas bankruptcy court insert.
J.C.'s going concern deal Penney, which includes the sale of its retail business to landlords Simon Property Group and Brookfield Property, as well as its real estate business to a group of majority mortgage holders, is expected to close on Monday.
The Texas bankruptcy court, which oversaw the bankruptcy case, had approved the sale earlier this month on objections from the ad hoc stock committee, which argued that the deal had been secured by secured lenders who they claimed were taking the process at the expense of guide unnecessarily accelerating shareholders and possibly other unsecured creditors.
JC Penney and his lenders have struggled, arguing that the deal is time sensitive and that closing the sale is the only way the retailer can avoid a liquidation that would close its 600+ stores and exclude its roughly 60,000 employees Job. The retailer's $ 900 million debtor loan is now due on Monday, and advisors to the retailer have argued in court that delaying sales beyond that point would stall the business and default the retailer.
On Friday, Gonzales Ramos, who was considering the residency request, agreed that there was enough evidence that delaying sales would hurt the retailer.
"I understand that this is a difficult situation ... the situation that has been created here is obviously far from ideal," she said. "It's difficult, emotional, for many present and non-present, and I'm so sorry for that. It's a situation we find ourselves in."
A representative from J.C. Penney declined to comment, and the chairman of the ad hoc shares committee did not comment.
At the hearing on Friday, shareholders group attorney, Johnie Patterson of Walker, and Patterson PC said that J.C. Penney has been targeted for the desired result by the secured lenders. The terms of the company's $ 900 million DIP loan, half of which was a “roll-up” of secured loan payment to first liens, cemented the momentum in their favor, Patterson argued in court. The large sum would be a secured administrative claim that arose in the course of the bankruptcy and, in contrast to unsecured claims before the bankruptcy, would be entitled to full repayment under the bankruptcy code, he argued.
"This is important because regardless of what happens in a bankruptcy case, an administrative right is entitled to full payment on confirmation or sometimes sooner," Patterson told the court. "That really got her into the driver's seat."
However, JC Penney attorney Michael Slade of Kirkland & Ellis LLP told the court that the timing of the sale at that point was non-negotiable and that further delay in closing the sale would jeopardize the retailer's survival and cause a cascade impact on others Interest groups, he argued.
"To say that staying here would harm others would be a massive understatement," Slade told the court.
“Six hundred plus stores would be closed, 60,000 people would be given notice, all commercial creditors would lose a partner, all secondary liens and other unsecured creditors would lose their chance of an earn-out, hundreds of shopping centers would each lose their anchor tenant. Another business in the mall would be lost suffer from it, ”he said. "The carnage would be massive."
In bankruptcies, where unsecured creditors typically receive lower clawbacks, if any at all, shareholders are at the bottom of the repayment priority list. J.C. Penney sought consensus from other stakeholders before filing the sale in bankruptcy court for final approval this month. Agreements were made with a group of minority first-time lenders and the official committee of unsecured creditors, which included the seller and landlord.
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