As it mulls a potential bankruptcy filing, JCPenney is in discussions with lenders to secure funding of $450 million. The debtor-in-possession (DIP) financing would make the merchant attain specific aims to get the second part of the loan, CNBC reported, citing unnamed sources.
JCPenney would be able to take $225 million of the bankruptcy loan on the first day as part of its first-lien lender talks. The company would then get the remainder depending on how the retailer does against its budget. Its lenders, for their part, are still in the process of going through the terms.
Such a format assists in safeguarding the retailer’s lenders if the business falls short should the virus return, consumers do not turn out, or if the two factors occur.
JCPenney is intending to seek bankruptcy Friday (May 15) at the earliest, but that timing could reportedly be delayed per one of the unnamed sources in the report. The retailer is at work on an effort that would consider shuttering between 180 and 200 retail locations while amid bankruptcy. As of February, it had 846 locations and had approximately 90,000 full-time and part-time workers among its ranks.
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The unnamed sources in the report, however, warned that plans are not yet set in stone.
The U.S. economy is encountering structural uncertainty while states seek to open businesses again and the coronavirus keeps spreading. On Tuesday, Dr. Anthony Fauci, the White House health advisor, cautioned that the country could see additional “suffering and death” from the virus in the event that some states move to reopen companies too soon.
As reported in mid-April, JCPenney was looking into filing for bankruptcy as the pandemic shuttered its retail locations for a time and modified its turnaround plans. It was noted at the time that the retailer has enough cash to survive in the months to come.
However, the retailer was taking a bankruptcy filing into account as a way to reconfigure its unsustainable finances and save on future debt payments.