KEY POINTS

  • JCPenney is negotiating a $450 million loan to keep it afloat in bankruptcy
  • Its expected to file for Chapter 11 on May 15
  • Its stock is trading at just $0.20 on the NYSE

With most of its 846 stores shuttered since March 18 due to the COVID-19 pandemic, JCPenney Company Inc. is set to file for bankruptcy Friday. It's also in talks to secure a $450 million “debtor in possession” (DIP) loan from first lien lenders for the bankruptcy.

The DIP loan will continue to fund its operations during Chapter 11 proceedings. Under the deal being drawn-up with these lenders, JCPenney will be allowed to draw $225 million of its bankruptcy loan on day one. It will receive the rest of the funds based on how it does against its budget. The loan terms are still being worked out. This option helps protect JCPenney’s lenders if the business continues to lose money because shoppers don’t return, the coronavirus returns in a second wave, or both events occurring.

Under its proposed bankruptcy plan, JCPenney will close anywhere from 180 to 200 stores. The department stories chain had 846 department stores as of February and employed 90,000 full-time and part-time employees.

Some analysts said JCPenney might no longer have a say in whether it declares bankruptcy on Friday. Friday is also the day the company has to pay the $12 million interest payment it failed to pay lenders last month. If JCPenney can't make that payment within the 30-day grace period, lenders can request the full payment of money owed before it’s due. This will force JCPenney to immediately declare Chapter 11 protection to stay alive.

JCPenney missed on a $17 million payment on May 7 and was given a grace period of five business days before it goes into default. It had only $386 million in cash on hand in February, plus the $1.25 billion it tapped from its $2.35 billion revolving credit line two months ago. A Chapter 11 could allow JCPenney to save money on looming debt payments and resolve some of its financial issues.

JCPenney traded at just $0.20 (up 28.7%) on the New York Stock Exchange (NYSE) on Tuesday. It’s being stuck below $1.00 means the company is still at risk of being delisted from the NYSE.

Two weeks after closing its stores on March 18, JCPenney said it will furlough scores of workers and take additional actions to maintain flexibility. These actions include deferring capital spend, cutting expenditures and halting employee hiring.

jcpenney Signage is displayed at the entrance of a JC Penney department store inside the Manhattan Mall on May 15, 2017, in New York City. Photo: Drew Angerer/Getty Images