Two major shopping mall owners, likely alarmed at the possible liquidation of JCPenney stores that serve as mall anchors, have stepped in to buy the bankrupt retailer, according to a law firm handling the deal.
An attorney for Kirkland & Ellis says Simon Property Group and Brookfield Property Partners are putting the final touches on their offer of $800 million for the chain that declared bankruptcy in May after the coronavirus (COVID-19) pandemic sent its already-declining sales into a freefall.
Attorney Joshua Sussberg told a court hearing that the rescue package will keep JCPenney operating in 650 stores and save about 70,000 jobs.
The complex deal will give some hedge funds that loaned money to the retailer ownership of some JCPenney assets, including select stores and distribution centers. In return, the department store chain will be relieved of some of its $5 billion debt obligation.
Also part of the deal, Wells Fargo will extend a $2 billion credit line, leaving JCPenney with a significantly smaller debt load and about $1 billion in cash.
Previously, Sycamore Partners, parent company of Belks, was seen as a potential buyer. In July published reports suggested Sycamore Partners would purchase JC Penney and merge some of its stores with the smaller chain.
When it declared bankruptcy in May, JCPenney said it would close some of the 846 stores it had at the time. The potential loss of all JCPenney stores was viewed as an existential threat by the shopping mall industry, already suffering huge losses in foot traffic and dependent on its anchors, like JCPenney, Macy’s, and Sears to attract shoppers.
The shift to online shopping during the pandemic has only made malls’ position in the marketplace more precarious.
A report in PYMNTS.COM in April summed up the problem for shopping malls, whose problems had suddenly been made worse.
“Part of it is the public psyche,” University of Maryland marketing professor Jie Zhang told the industry publication. “This virus is likely not going to go away any time soon, and the one type of place where people will be much more vigilant about avoiding in the longer term will be those crowded, enclosed spaces. And that’s exactly what traditional shopping malls are.”
Sussberg told the court the deal took a while to complete because of the large number of players and their competing interests. The sale proposal will be presented to the bankruptcy court for final approval.