J.C. Penney shareholders turn to federal court to try to stop sale to Simon, Brookfield and lenders - The Dallas Morning News

J.C. Penney’s shareholders, which include many of the retailer’s retirees, aren’t giving up on their view that there’s another way out of bankruptcy that includes them.

A committee of equity holders filed an emergency motion in federal court Monday to stay, pending an appeal, the sale of Penney to its two biggest mall landlords and its first-lien debtholders.

U.S. District Court Judge Nelva Gonzales Ramos ordered a response by Wednesday at noon from Penney and “all interested parties.” The judge also set a hearing for 9 a.m. on Friday on the stay motion, which could postpone the sale of Penney.

After an almost 10-hour hearing on Nov. 9, U.S. Bankruptcy Court Judge David Jones approved the sale of Penney’s retail business to Simon Property Group and Brookfield Property Group, and a big chunk of its real estate — 160 stores and six distribution centers — to its first-lien lenders to pay back debt.

Shareholders have fought to persuade the bankruptcy judge and other parties that Penney could emerge without a sale as a reorganized company that closed 156 stores and still operates 700 stores.

Shareholders argue in the federal court filing that a $900 million loan that Penney received at the beginning of its bankruptcy, called a debtor-in-possession loan, wasn’t necessary and ended up giving this first-lien group led by H/2 Capital “total control over the bankruptcy.”

The shareholders also argue that Penney is being split up and sold for far below its asset valuation.

Bondholders had also opposed the sale until an agreement was reached on Nov. 6. A creditor group led by Aurelius Capital Management had called that agreement “predatory” and had received the backing of Penney’s unsecured creditors. The group received a $40 million fee earlier this month to drop its opposition to the sale of Penney.

In that agreement, Penney will also pay $6 million of the Aurelius group’s legal fees.

Penney’s bankruptcy confirmation hearing to approve an an exit through the sale of the company is scheduled for Nov. 24.

Penney hasn’t commented on the shareholders' move.

Twitter: @MariaHalkias

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J.C. Penney shareholders turn to federal court to try to stop sale to Simon, Brookfield and lenders - The Dallas Morning News
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