NEW YORK(1) – J.C. Penney Co Inc filed for bankruptcy protection on Friday with plans to completely shut some shops and in addition discover a potential sale, making it the most recent brick-and-mortar retailer to crumble as extended retailer closures in response to the COVID-19 pandemic drive a ultimate stake by way of long-troubled companies.

The U.S. division retailer chain, identified for promoting household attire, cosmetics and jewellery at roughly 850 places, mentioned it reached an settlement with present lenders for $900 million of debtor-in-possession financing to help operations whereas it navigates bankruptcy proceedings in federal court docket in Corpus Christi, Texas.

The mortgage consists of $450 million in contemporary financing, the corporate mentioned. The stability is made up of present debt being “rolled up” to be given the identical authorized standing as the brand new funding that J.C. Penney obtained, individuals accustomed to the matter mentioned. The retailer mentioned it had a further $500 million in money available earlier than the bankruptcy submitting.

Whereas J.C. Penney plans to reorganize and emerge from bankruptcy proceedings after eliminating a number of billion {dollars} of debt, it can additionally discover a sale as a part of the phrases of its new financing, the corporate mentioned. 1 earlier reported that the corporate was nearing a bankruptcy submitting and negotiating the financing.

The corporate on Friday mentioned it will start closing some shops completely in phases and would disclose additional particulars in coming weeks. Folks accustomed to the matter beforehand informed 1 that the corporate initially plans to completely shutter roughly 200 shops, saying the determine may fluctuate relying on negotiations with collectors.

The bankruptcy submitting caps a protracted decline for the 118-year-old division retailer chain, which as soon as operated greater than 1,600 places that turned fixtures in U.S. malls. The corporate at one level employed almost 200,000 individuals.

Even earlier than the coronavirus outbreak, J.C. Penney was scuffling with almost $four billion of debt and strain from each low cost retailers and e-commerce corporations.

Bigger retailers akin to Walmart Inc and Goal Corp have squeezed smaller rivals by providing bargain-price attire, together with on-line.

IN THE FOOTSTEP OF OTHER BANKRUPTCIES

The coronavirus outbreak, which has resulted in additional than 80,000 deaths in the USA, is now forcing a monetary reckoning amongst an array of shops that needed to quickly shut their doorways below states’ orders. Different retailers already grappling with clients’ abandonment of conventional shops for on-line purchasing have additionally resorted to bankruptcy filings.

Earlier this month, each luxurious division retailer chain Neiman Marcus Group and clothes retailer J. Crew Group Inc filed for bankruptcy protection after different makes an attempt to remodel their funds failed. Stage Shops Inc, a U.S. division retailer chain promoting mid-priced attire at lots of of shops in largely rural areas, mentioned earlier this week it will liquidate except it finds a purchaser.

Like different retailers, J.C. Penney has began reopening its shops in phases as many states have begun to loosen coronavirus restrictions. However with U.S. unemployment now on the highest degree for the reason that Nice Despair of the 1930s, there are severe issues that client spending will stay dampened for a chronic stretch.

In opposition to that backdrop, J.C. Penney confronted a looming $105 million debt cost in June and $300 million of annual curiosity bills. Including to strain was an unprecedented span of misplaced gross sales and uncertainty whether or not customers involved about their well being would return to shops.

FILE PHOTO: Customers enter and go away the J.C. Penney division retailer in North Riverside, Illinois, U.S., November 17, 2017. REUTERS/Kamil Krzaczynski/File Photograph

J.C. Penney negotiated with collectors earlier this yr for extra monetary respiration room, hoping to present its new chief government, Jill Soltau, extra time to forge a turnaround targeted on the corporate’s roots as a vendor of reasonably priced attire for middle-class households. The talks didn’t bear fruit.

The coronavirus disaster compelled J.C. Penney to arrange for a bankruptcy submitting to deal with its strained funds, which on the horizon included greater than $2 billion of debt coming due in 2023.

In March, the corporate drew down $1.25 billion from its credit score line. It later skipped debt funds, triggering grace intervals to make good earlier than defaulting that expired this week. The corporate made a kind of overdue funds earlier than submitting for bankruptcy.

Beneath one plan being mentioned, J.C. Penney would emerge from bankruptcy as two separate corporations, the sources mentioned. One would personal among the firm’s actual property and function a landlord to the opposite entity that may function the retailer’s enterprise, they mentioned. Collectors, a lot of them Wall Avenue hedge funds, would management the companies in trade for forgiving debt, they mentioned.

The corporate earlier this month resolved a authorized dispute with Sephora, the French magnificence chain owned by LVMH that had threatened to finish its settlement to promote cosmetics inside J.C. Penney shops.

Days earlier than searching for bankruptcy protection, J.C. Penney paid almost $10 million in bonuses to high executives. The corporate mentioned it was “taking obligatory steps to retain our gifted administration group,” which made strides on the corporate’s turnaround plan earlier than the COVID-19 pandemic.

FROM RURAL ROOTS TO U.S. MAINSTAY

James Money Penney based the eponymous retailer with companions in 1902. Averse to the haggling that was widespread on the time, he believed costs ought to be low, set and marked, an perspective that served as a precursor to fashionable purchasing, in accordance with the J.C. Penney Museum in Hamilton, Missouri, the founder’s hometown.

The corporate’s first retailer, opened in Wyoming, was known as “The Golden Rule,” a reference to what the retailer seen as its normal for customer support, in accordance with its web site.

J.C. Penney shops initially dotted Primary Streets in rural cities dominated by farmers. After increasing to function greater than 30 shops, it went public in 1929.

By the 1970s, J.C. Penney had turn into a mainstay throughout the USA. The next decade, it acquired a financial institution, and later drugstores earlier than ultimately divesting each companies.

The e-commerce revolution that took root within the 21st century rocked almost each nook of the standard retail panorama and eroded J.C. Penney’s enterprise a lot because it did these of its rivals. Lately, J.C. Penney has closed lots of of shops and lower hundreds of jobs.

The corporate has additionally confronted fierce competitors from low cost chains together with TJX Cos Inc’s Marshalls and T.J. Maxx chains.

FILE PHOTO: A J.C. Penney Firm Inc. retailer is pictured at a mall in Langhorne, Pennsylvania, U.S. November 17, 2018. REUTERS/Suzanne Barlyn

J.C. Penney suffered a big setback after a failed transformation try spearheaded by former CEO Ron Johnson, the one-time pioneer of Apple Inc’s retail shops. Johnson launched costly renovations of J.C. Penney places and eradicated coupons, leading to a buyer backlash that led to plunging gross sales. He was changed in 2013.

Soltau took the reins in late 2018 after a revolving door of executives, and tried to return J.C. Penney to its roots as a vendor of reasonably priced attire for middle-class households. She jettisoned the corporate’s equipment enterprise and largely deserted its furnishings choices.

(This story corrects date of firm’s public itemizing to 1929 from 1927 in paragraph 21).

Reporting by Mike Spector in New York; Enhancing by Leslie Adler