By Vince Sullivan

Law360 (July 1, 2020, 8:26 PM EDT) -- Attorneys representing J.C. Penney told a Texas bankruptcy judge Wednesday that its Chapter 11 case is progressing on schedule, and that the retail icon has been able to reopen 831 of its nearly 850 stores as COVID-19 restrictions have been lifted in different parts of the country.

During a hearing conducted via phone and videoconference, debtor attorney Joshua A. Sussberg of Kirkland & Ellis LLP said that ahead of an upcoming deadline in its Chapter 11 case, J.C. Penney has been able to reopen the bulk of its stores and that revenues from those locations have surpassed initial projections. As of the end of June, the debtor had about $979 million in cash on hand, beating its earlier cash flow projections by $100 million, he told the court.

"The company was opening locations as and when they could based on state and regulatory restrictions," Sussberg said. "They've been able to open some of their higher-performing stores more recently. With those higher-performing stores, the revenues have been better. We think that's a positive, and we think it will continue to trend in the right direction."

J.C. Penney is approaching a July 8 deadline to submit its business plan, including whether it will seek to restructure the company by spinning off its real estate holdings from its operating assets as a property company, or selling the operating company as a whole. Sussberg said the company's first-lien lenders will have to approve the business plan by July 15.

He explained that the so-called PropCo, structured as a public real estate investment trust, will be owned by first-lien lenders, and the debtor is exploring a potential sale of the OpCo. So far, at least 20 potential investors have signed nondisclosure agreements, and four are performing intensive diligence on the assets, Sussberg said.

The debtor will also need to decide by Thursday if it needs to make a second draw on its debtor-in-possession financing. If the all-asset sale path is chosen, J.C. Penney can draw $50 million of the remaining $225 million available under the DIP, Sussberg said. If it decides to go with the real estate spinoff, it can draw the full amount. It can also decide to not draw any of the remaining DIP financing, but Sussberg said that despite the company's higher revenue since reopening most of its stores, the uncertainty surrounding a potential resurgence in COVID-19 and the resumption of business restrictions makes that an unlikely scenario.

J.C. Penney filed for bankruptcy on May 15, saying it had been undergoing a comprehensive business overhaul for the last two years to deal with the general decrease in brick-and-mortar retail sales and had been putting together an out-of-court restructuring of its $8 billion in debt until the coronavirus pandemic doomed those efforts. The company was forced to shutter all 850 of its stores and furlough most of its 85,000 employees.

The retailer's Chapter 11 plan proposes splitting off the debtor's real estate holdings into a separate entity and closing up to 242 stores in multiple waves, according to court filings. Sussberg said Wednesday that the first wave has seen more than 130 stores permanently closed. The second wave will begin this week and will see 13 more stores shut down, he said.

J.C. Penney is represented by Joshua A. Sussberg, Christopher J. Marcus and Aparna Yenamandra of Kirkland & Ellis LLP, and Matthew D. Cavenaugh, Jennifer F. Wertz, Kristhy M. Peguero and Veronica A. Polnick of Jackson Walker LLP.

The case is In re: J.C. Penney Company Inc., case number 20-20182, in the U.S. Bankruptcy Court for the Southern District of Texas.

--Editing by Alanna Weissman.

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