MikeKalasnik/CC BY-SA

By Alan Wolf, YSN

JCPenney has been spared from liquidation by two mall owners who have agreed to buy the bankrupt department store chain for $1.75 billion.

Under terms of the deal, Simon Property Group, the largest mall operator in the U.S., and Brookfield Property Partners will ante up about $300 million in cash, assume $500 million in debt, and apply the balance to maintaining operations after the retailer emerges from Chapter 11.

According to a report in the New York Times, Penney had until yesterday to either find a buyer, cut a deal with creditors, or begin liquidation sales.

Instead, the department store will be divvied up between the mall operators and its first lien lenders, with Simon and Brookfield retaining substantially all of chain’s retail and operating assets under an entity dubbed OpCo, and the lenders assuming ownership of Penney’s 161 real estate assets and all of its owned distribution centers through a real estate investment trust (REIT) called PropCo.

The separate operating and real estate companies would then enter into a master lease covering the Penney properties, the retailer said.

“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,” Penney CEO Jill Soltau said in a statement.

Founded by James Cash Penney Jr. in 1902, the iconic retailer filed for bankruptcy protection in May as the COVID crisis hastened a downturn in mall-based, apparel-driven stores that began years earlier. The acquisition by the mall owners is seen as an attempt to salvage their increasingly vacant properties, as Simon did through previous joint purchases of bankrupt retailers Brooks Brothers, Lucky Brand and Forever 21.

Penney said it expects to complete the transaction and emerge from bankruptcy before the start of the 2020 holiday selling season.