Dive Brief:

• J.C. Penney is moving quickly to sell itself in a bankruptcy auction by the fall in a plan that would keep the retailer operating under new ownership, attorneys for the retailer said in a hearing Wednesday.
• Private equity firm Sycamore Partners, department store retailer Hudson's Bay Co., and landlords Simon Property Group and Brookfield Properties have proposed bids for Penney, according to anonymously sourced reports in the New York Post and Women's Wear Daily. Kirkland & Ellis partner Joshua Sussberg, who is representing Penney in its Chapter 11 case, mentioned the Post's story in the hearing, confirming three separate bidders for Penney, without naming them.
• But Sussberg also said aspects of the Post's story were incorrect, including the possibility of Penney being subsumed by a competing department store brand in one of the bids. (The Post reported that Sycamore planned to merge Penney with Belk and move it under the latter's banner and CEO.) Sussberg also said there was "not one discussion" taking place around liquidating Penney.

Dive Insight:

The bidding for J.C. Penney is a signal that key players in the industry see value in the department store chain, which has been in a steady state of decline for around a decade.

Markets have reacted to the reports. Prices for debt tied to Belk spiked earlier this week, according to Bloomberg Law, as did prices for Penney's stock. 

Penney entered bankruptcy with roughly 850 stores and nearly $5 billion in funded debt, leverage that was already unsustainable and made impossible to manage by the COVID-19 crisis. Before the pandemic, Penney's sales were on a long-running negative trajectory, even after multiple efforts by multiple CEOs around merchandising, marketing and pricing. 

Bankruptcy has given the retailer the chance to bring its footprint, debt and cost structure closer in line with its shrinking customer base. Already the retailer has moved to close more than 150 stores in Chapter 11 while cutting 1,000 jobs. According to Sussberg, the company has $400 million more in cash than initially budgeted at the beginning of Chapter 11.  

A sale of the company, at a high enough price, presents creditors with an easy way to recoup payment — far easier in terms of time and effort than taking over ownership of a bankrupt company by converting their debt investments into equity.

Under a plan being considered, Penney would effectively be split into two "PropCos," owning some of Penney's real estate assets, and an "OpCo," which would own its intellectual property along with some other remaining assets, according to Sussberg and a company presentation. So far, the company has not disclosed publicly who the interested bidders are or or the value of their bids.

While the New York Post reported that Sycamore was the front runner in the bidding, Sussberg disputed that. "There has been no declaration as to what bid is in first, second, third or fourth place," he said. "There has been no discussion about any alternatives."

Sussberg said the company was "moving forward" with a sale process, as it was "in the best interest of this company, and many of the 80,000-plus employees, that we are seeking to ensure will continue to operate under the J.C. Penney banner." If the company does indeed pursue the sale option, it hopes to hold an auction and win court approval of a sale by the fall, according to a presentation prepared for the hearing.