Dive Brief:

• J.C. Penney is moving to close 144 stores, which were previously announced in the summer, as it works toward a sale and restructuring of its business, according to court documents filed Thursday.
• After slow progress, Penney is trying to move forward on its proposed deal to sell its department store operations to Simon Property Group and Brookfield Property Partners. In a hearing this week, an attorney for the retailer said that vendors are holding back inventory as they wait for a deal to be signed and closed.
• A minority group of lenders led by Aurelius Capital Management have challenged aspects of the deal's structure, which an attorney for the group called "unfair" and says favors a prominent secured lender, Milbank LLP.

Dive Insight:

J.C. Penney continues to shrink as it tries to beat a path out of bankruptcy. The retailer is in Chapter 11 in part because of perpetual sales declines and profit losses, a sign that the company was outsized relative to a diminished customer base. 

Whether Simon and Brookfield see a potentially profitable venture in Penney alone or whether they trying to protect their malls from the full liquidation of a major anchor retailer is an open question. But there is more at risk, as many separate stakeholders all pointed out in this week's hearing. Namely, there is a business more than a century old that supports tens of thousands of jobs in the country. 

The deal still needs to be signed, approved and completed for those jobs to be saved, which — as the progress of Penney's Chapter 11 case has shown — is easier said than done. A month has passed since Joshua Sussberg of Kirkland & Ellis, one of the retailer's bankruptcy attorneys, announced in a court hearing that Simon and Brookfield has agreed in principle to buying Penney's operations, in a deal that would also spin off some of its owned property into a separate venture to be taken over by secured lenders. But no formal asset purchase agreement has been filed, as talks continue in the background, and stakeholders across the board sound the alarms about the time it is taking. 

As Sussberg noted, the company has more cash on hand than planned — which on its face sounds like a good thing for a bankrupt company, until he explained why that is: Penney isn't receiving as many goods from its suppliers as planned. "You cannot sell what you don't have," Sussberg said. 

And according to the lawyer, vendors are waiting for the Simon and Brookfield deal to come across the finish line, which is understandable, especially after bankruptcy debacles like the Toys R Us liquidation. Vendors need to know that they are selling to a viable entity that will remain in business long enough to pay its invoices. 

No one has challenged the premise of Penney's operations being sold to Simon and Brookfield so that the retailer may remain alive. As an attorney for Aurelius and other minority lenders said in this week's hearing, "Nobody wants to see this company fail." Instead, the lenders are challenging the structure and value of the deal and how proceeds would be distributed through the hierarchy of creditors.

The stakes are getting ever higher as Penney heads into the all-important holiday period. "The longer this goes, the worse it gets," said federal bankruptcy judge David Jones, who is overseeing Penney's case. "Black Friday is not too far away, and I know what that means for a retail business."

Jones set a series of hearings from Oct. 16 through late November to move through the sale process and consideration of Penney's bankruptcy plans, including a Nov. 2 hearing to consider a motion to sell Penney.