What happened
Shares of J.C. Penney (JCPN.Q), the ailing department store chain, soared today after the company surprised investors by making a $17 million interest payment that was due today. Reports had been circulating that the company was planning to file for bankruptcy, but the interest payment means that it will live to see another day.
The stock, which had been halted at the market open, jumped as much as 59% Friday morning, and was trading up 38% as of 10:49 a.m. EDT.
Image source: J.C. Penney.
So what
In a regulatory filing, Penney said it made the payment on Thursday that was due on May 7, taking advantage of a five-business-day grace period. The company said it used the grace period to evaluate strategic alternatives, though it hasn't selected one at this time. It said it is still considering options.
A bankruptcy filing still seems imminent for the chain, which had been struggling for years before the pandemic forced mass store closures.
According to news reports, the company is in negotiations for $450 million in debtor-in-possession financing that would allow it to continue operating stores while it's in bankruptcy and restructuring. Making the payment may help the retailer improve its negotiating position for an impending bankruptcy, giving the business a greater chance of survival over the long term. It also has a $12 million payment due today after a 30-day grace period is expiring, and it's unclear if it will make that payment.
Now what
According to CNBC, Penney has been working on a bankruptcy plan that would close 180 to 200 of its approximately 850 stores. Given the circumstances around the COVID-19 pandemic, the company has few other options. A bankruptcy would almost certainly wipe out common shareholders, who are last in line in claims on the company's assets. But the stock will continue to be volatile ahead of the filing as traders look to make a quick score. Today's trading volume was several times higher than the normal level.
Penney's first-quarter earnings report is expected later this month, though the company has yet to schedule a date.
