Citing anonymous sources yesterday, Reuters reported J.C. Penney (OTC:JCPN.Q) is investigating a Chapter 11 filing. While it wasn't the only contributing factor, the coronavirus pandemic undoubtedly quickened the retailer's sudden downfall.
While the company still has a some cash, all of its 850 stores are closed and a range of significant annual debt payments will arrive shortly. The retailer was already in trouble and attempting a turnaround before COVID-19, and now faces a situation where its income is cut off for an unknown period of time.
The company reportedly hired specialist consulting firm AlixPartners LLP on Monday, apparently looking for guidance out of its difficulties. Analysts have noted that the company has several options moving forward, including rescue financing, non-bankruptcy changes to its debt, and bankruptcy.
Any attempts to secure new financing or restructure its debt, however, will have to overcome several disadvantages. J.C. Penney is currently on the hook for approximately $4 billion in debt. Additionally, Moody's just gave it a junk bond rating of Caa3, classifying it as a speculative bond with very high credit risk and poor standing.
J.C. Penney needs to pay $12 million on one of its debts today, according to its SEC filings. June will see $105 million in bond repayments come due. At the start of the year, it attempted and failed to secure deferments on debt repayment from its creditors. Its turnaround plans, including a realignment toward selling mid-priced clothing, were nevertheless gaining some traction before the coronavirus shut down its locations indefinitely.
Now, it might be forced to follow in the footsteps of Sears, a competing department store that filed for bankruptcy in October 2018 and was acquired as a subsidiary by Transformco.