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J.C. Penney Buys a 30-Day Breathing Space but Risks Default by Delaying $12 Million Payment

By Rhian Hunt – Apr 15, 2020 at 6:47PM

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The company says it's using the time to study its choices.

Squeezed between declining revenue and $4 billion in debt, J.C. Penney (JCPN.Q) bought itself some additional time to explore its alternatives by declining to pay the $12 million interest due on its 2036 bonds today. The company's activation of a 30-day grace period means it doesn't immediately default on the obligation, but it will if it fails to pay the interest within the next 30 days.

The move comes just hours after anonymous but closely involved sources indicated that the department store company may be about to declare Chapter 11 bankruptcy. In sharp contrast, it paid its April store rent to landlords while many other retailers have asked for deferments. J.C. Penney has been floundering for years in the face of online retailers' competition, but the coronavirus derailed its turnaround plans.

A man showing empty pockets.

Image source: Getty Images.

The company filed a Current Report with the SEC today declaring its intention to skip the senior note interest payment. The report says it did so "to evaluate certain strategic alternatives, none of which have been implemented at this time."

The company is now on a one-month countdown, at the end of which bondholders can begin legal proceedings to claim the unpaid interest. If that happens, company assets would probably be confiscated to meet the obligations, making bankruptcy certain. J.C. Penney can potentially negotiate a settlement with creditors before the deadline arrives, pay the interest before the clock runs out, or declare bankruptcy, among other possibilities. 

J.C. Penney's shares closed at $0.23 today, down 80.8% from their 2020 peak of $1.20 on Jan. 8, and far below their all-time high of $81.24 on Nov. 1, 2006.

Rhian Hunt has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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