Real estate companies Simon Property Group Inc. (SPG, Financial) and Brookfield Property Partners LP (BPY, Financial) announced on Wednesday that they are close to rescuing J.C. Penney Co. Inc. (JCPNQ, Financial) from possible bankruptcy in an $800 million deal.
According to CNBC, Joshua Sussberg of the law firm Kirkland & Ellis said the two companies will pay approximately $300 million in cash and assume $500 million in debt according to court hearing remarks.
On May 11, the Plano, Texas-based department store chain filed for Chapter 11 bankruptcy and entered into a restructuring support agreement plan with its lenders to strengthen the retailer's financial position. J.C. Penney CEO Jill Soltau said in a statement that the coronavirus pandemic "created unprecedented challenges" for families, communities and the American retail industry as a whole.
CNBC added that analysts have cited several likely reasons for Simon and Brookfield saving J.C. Penney from bankruptcy, including the prevention of "co-tenancy clauses" that allow other retailers in a near-empty mall to renegotiate leases or vacate the mall. Owing J.C. Penney may also facilitate the mall owners' real estate repurposing should J.C. Penney stores close in the mall owners' properties.
J.C. Penney had the warning signs of possible bankruptcy
According to GuruFocus Warning Signs, a Premium feature, J.C. Penney has several red flags that signal the possibility of financial distress, including increasing long-term debt, a weak Piotroski F-score of 3 and a low Altman Z-score of -0.67. Additionally, revenues have declined over the past five years while the company had operating losses over the past three years.
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GuruFocus ranks Simon Property Group's profitability 8 out of 10 on several positive investing signs, which include expanding operating margins, a four-star business predictability rank and a return on assets that outperforms 80.80% of global competitors.
Gurus with large holdings in Simon include Pioneer Investments (Trades, Portfolio), Smead Value Fund (Trades, Portfolio) and Chris Davis (Trades, Portfolio)' Davis Selected Advisors.
Disclosure: No positions.
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