JCPenney Bankruptcy? Analysts Say It's Valuable Enough To Survive

Even with reports of JCPenney Co. discussing Chapter 11 bankruptcy reorganization behind the scenes with lenders, retail analysts believe the 118-year-old department store has enough value to prevent it from being written off altogether.

News outlets started reporting over the weekend that bankruptcy reorganization discussions are underway at JCPenney, with the Wall Street Journal saying Sunday a Chapter 11 bankruptcy loan as high as $1B is on the under discussion. 

If Penney's does land in Chapter 11, the process would allow the firm to shore up financing to carry it through a reorganization process, with the goal of emerging from the bankruptcy court's oversight as an operating company minus the debt, and with a more competitive structure in place. 

The threat of bankruptcy isn't new for Plano, Texas-based JCPenney, which for the last few years has been particularly struggling under $4B of debt amid the tough retail landscape and has been on retail watchlists. When the company skipped a scheduled interest payment earlier this month, those concerns went into hyperdrive, especially since the retailer is more poised to falter with all of its stores closed during the coronavirus crisis. 

Will the brand's 850 stores go the way of Toys R Us and Sears?

“It's really speculation at this point,” Trepp Analytics' Manus Clancy told Bisnow. “It wouldn’t stretch the imagination to believe that [a bankruptcy] could happen given their stock price and the COVID-19 news ... I don’t think anyone would be shocked if it happened.”

But there is skepticism over what will eventually happen to Penney's. 

CNBC investment anchor Jim Cramer told his audience he won't believe in a Penney's bankruptcy until he sees it with his own eyes, TheStreet reported.  

And retail consultant and former Morgan Stanley senior analyst Walter Loeb doesn't see a Penney's bankruptcy as absolutely necessary. 

Loeb said one of the retailer's large suppliers, vendors or national mall operators could offer it a financial lifeline or a buyout to keep the brand going without filing for Chapter 11. 

“I think they have some very valuable assets, so before they write them off as going to Chapter 11, you have to look at all of the assets the company has,” Loeb told Bisnow. Those assets include billions of dollars worth of exclusive brands along with valuable real estate. 

Loeb also noted Penney's has another few weeks to come up with alternatives to bankruptcy. 

He said when stores reopen after the pandemic, Penney's could keep a few hundred unprofitable locations closed for good, but he's still bullish on the brand's survival. 

“It has loyal customers, and it would in my opinion be a great shame to see this all disappear,” Loeb said. “I think JCPenney will not disappear. It has too much of a following and the industry needs doors to sell the merchandise.”

In this time of retail crisis, now would be a great time for a white knight buyer that believes in Penney's to step up, Loeb said.

“It’s cheap right now,” Loeb said of Penney's, which has a stock price trading well under $1.