J.C. Penney Company, Inc. announced that it has reached an agreement in principle to sell JCPenney through a court-supervised sale process. The Company plans to seek approval of a disclosure statement and, ultimately, confirmation of a plan of reorganization in parallel with the sale process. Related to the sale process, JCPenney expects to execute a “stalking horse” asset purchase agreement (“APA”), which will track an executed letter of intent, outlining the following:

Brookfield Property Group (“Brookfield”) and Simon Property Group (“Simon”) intend to acquire substantially all of JCPenney’s retail and operating assets (“OpCo”) for $1.75 billion, which includes a combination of cash and new term loan debt.

The agreement contemplates the formation of a separate real estate investment trust and a property holding company (“PropCos”), which will include 161 of the Company’s real estate assets and all of its owned distribution centers. The PropCos will be owned by the Company’s Ad Hoc Group of First Lien Lenders (“First Lien Lenders”).

The OpCo and PropCos will enter into a master lease with respect to the properties and distribution centers moved into the PropCos.

“We have determined that an agreement with Brookfield and Simon, as well as the formation of separate real estate investment trusts owned by our First Lien Lenders, is the best path forward to maximize value for our stakeholders, ensure we keep the most stores open and associates employed, and position JCPenney to build on our over 100-year history,” said Jill Soltau, chief executive officer of JCPenney. “The interest in our operations reflects our Company’s strength and our loyal customer base. It is a testament to the hard work and dedication of our talented associates and the progress we have made in implementing our Plan for Renewal to Offer Compelling Merchandise, Drive Traffic, Deliver an Engaging Experience, Fuel Growth, and Build a Results-Minded Culture.”

Ms. Soltau continued, “As we continue to move through the sale process, our focus will remain on serving our customers and working seamlessly with our vendor partners. We have been a trusted partner to all of our stakeholders since 1902, and we expect to continue that track record for decades to come under the JCPenney banner.”

Upon the execution of the APA, the agreement will be binding on Brookfield, Simon, and the First Lien Lenders. JCPenney intends to file a motion seeking authorization from the U.S. Bankruptcy Court for the Southern District of Texas (the “Court”) to conduct an auction pursuant to Section 363 of U.S. Bankruptcy Code. Accordingly, the motion is expected to set out the proposed bidding procedures for the auction, with Brookfield, Simon, and the First Lien Lenders serving as the “stalking horse bidder,” designed to achieve the highest or otherwise best offer for the benefit of JCPenney’s stakeholders.

It is anticipated that the Company will complete the auction and emerge from the Court-supervised process operating under the JCPenney banner in advance of the 2020 holiday season.

As previously announced, JCPenney entered into a restructuring support agreement with lenders holding approximately 90 percent of its first lien debt to reduce the Company’s outstanding indebtedness and strengthen its financial position. To implement the financial restructuring plan, the Company filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code.