Old Copper Co. Inc. (f/k/a CPPRQ/JCPNQ JC Penney)

[Ace 420]

July 4th 2020

This memorandum addresses the formation of the Ad Hoc Committee of Equity Interest Holders (the “Committee”) in the bankruptcy cases (the “Bankruptcy Cases”) of J.C. Penney Company, Inc. and certain affiliate subsidiaries (the “Debtors”) and provides an overview of the Committee’s actions in the Bankruptcy Cases. The Bankruptcy Cases are pending in the United States Bankruptcy Court for the Southern District of Texas – Corpus Christi Division (the “Bankruptcy Court”).

Important Information Regarding the Committee’s Professionals

As set forth herein, the Committee has retained Professionals to provide legal counsel and financial advisory services to the Committee in these Bankruptcy Cases. The Professionals do not represent any Committee member or shareholder in their individual capacity.

The information provided in this and future updates does not, and is not intended to, constitute legal advice; instead, all information, content, and materials discussed herein are for informational purposes only. Information herein may not constitute the most up-to-date legal or other information.

Readers should contact their attorney to obtain advice with respect to any particular legal matter. Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. Receipt of this update or any of the resources contained within does not create an attorney-client relationship between the reader and the Professionals.

General Committee Update

The Debtors commenced the Bankruptcy Cases on May 15, 20202 (the “Petition Date”), filing voluntary petitions (the “Petitions”) for relief pursuant to chapter 11 of title of the United States Code (the “Bankruptcy Code”). The Debtors alleged, among other factors, that stark reductions in revenue resulting from store closures amid the global COVID-19 pandemic left the Debtors with insufficient cash to support operations while servicing existing debt and necessitated the Bankruptcy Cases.

Several shareholders organized to expressed concerns regarding the Debtors’ decision to commence these Bankruptcy Cases and regarding the projections and valuations being touted by the Debtors in their court filings. One such group, led by Niko Celentano, filed a pleading with the Bankruptcy Court seeking either the dismissal of the Bankruptcy Cases or the appointment of an official committee of equity interest holders (ECF # 319).[1] The motion was opposed by both the Debtors and the Official Committee of Unsecured Creditors (the “UCC”).

On June 9, 2020, a hearing was held to consider the shareholders’ motion. During that hearing the Bankruptcy Court suggested a compromise that ultimately led to the Bankruptcy Court entering an order (ECF # 680) authorizing the formation of the Committee and providing up to $250,000 from the Debtors’ bankruptcy estate toward payment of professional fees for the Committee in these Bankruptcy Cases. In doing so, the Bankruptcy Court has stated that the Committee budget has been provided so that the Committee “can become educated, learn exactly what's going on in the case, distribute that information to all shareholders so that people can make better educated, informed decisions, whatever those decisions might be.”

Immediately upon entry of the Bankruptcy Court’s order regarding formation of the Committee, the Committee was organized and hired Okin Adams LLP (“Okin Adams”) as counsel to the Committee. Following a thorough interview process, the Committee also has engaged the financial advisory firm CR3 Partners, LLC (“CR3,” and, with Okin Adams, the “Professionals”) to review and provide advice and analysis regarding the Debtors’ financial plans and data.

Update from Okin Adams

Upon being selected as counsel to the Committee, Okin Adams immediately began discussions with the Debtors’ attorneys in order to facilitate the Committee’s access to information. Further, Okin Adams began an intensive review of relevant pleadings and orders already entered in the Bankruptcy Cases in order to advise the Committee regarding key procedural points and identify key deadlines/dates. Okin Adams has advised and assisted the Committee in formally organizing, adopting internal bylaws, and establishing protocols for the distribution of information regarding the Debtors’ Bankruptcy Cases. Additionally, Okin Adams continues to monitor pleadings and attend hearings on behalf of the Committee.

Access to Information

As Debtors’ counsel has stated on the record, immediately upon being retained Okin Adams began negotiations with the Debtors regarding access to information regarding the Debtors’ bankruptcy case and the reasons for filing. Specifically, the parties engaged in discussions regarding the protection of any sensitive or confidential data that could be shared with the Professionals and the Committee.

Review of Significant Pleadings and Orders

Additionally, Okin Adams began an intensive review of an extensive number of previously filed pleadings in these Bankruptcy Cases. Of key importance, Okin Adams has reviewed pleadings related to the Debtors’ request to obtain post-petition financing (“DIP Loan”) and the Restructuring Support Agreement (“RSA”) by and between the Debtors and certain pre-petition secured lenders (the “Lenders”). The RSA sets forth the Debtors agreement to support certain relief and take certain actions in these Bankruptcy Cases. Amongst other agreements, pursuant to the RSA the Debtors have agreed to negotiate a plan of reorganization acceptable to the Lenders.

Under the DIP Loan, the Lenders have agreed to provide up to $450 million in new money financing during the Bankruptcy Cases. Further, the order approving the DIP Loan (“DIP Loan Order”) requires the Debtors to complete certain Bankruptcy Case milestones (“Milestone(s)”) by deadlines established by the DIP Loan lenders (the “DIP Lenders”) and agreed to by the Debtors pursuant to the RSA. The most significant Milestone is the July 15, 2020 deadline for the Debtors and the Lenders to agree to restructuring terms supported by a business plan acceptable to the Lenders. If the Debtors are unable to reach agreement with the Lenders, the RSA requires the Debtors to pursue a sale of substantially all of the Debtors assets and severely limits the Debtors ability to use available cash after July 15, 2020.

In addition to the DIP Loan pleadings and the RSA, Okin Adams has evaluated the Debtors’ applications to employ various professionals, including Kirkland & Ellis, LLP (bankruptcy counsel, “K&E”), AlixPartners LLP (financial advisor, “Alix”), and Lazard (investment banker). Okin Adams evaluated the substance of the applications and disclosures made by these professionals as required under the Bankruptcy Code. Okin Adams further reviewed and advised the Committee regarding objections filed by the United States Trustee’s Office.

Organization of the Committee

Finally, Okin Adams has analyzed the Bankruptcy Court’s order authorizing the formation of the Committee and the proceedings leading up to entry of that order. Okin Adams has advised the Committee regarding the adoption of internal Bylaws and the establishment of protocols for the dissemination of information to shareholders in these Bankruptcy Cases.

Update from CR3

Upon being retained by the Committee, CR3 worked with the Committee and Okin Adams to develop a strategy for gathering and analyzing data from the Debtors and their advisors. At this time, the Debtors and their advisors are reasonably cooperating with the Committee and have provided CR3 access to a substantial volume of information, including:

· access to two data rooms set up by the Debtors – one for plan participants and one for marketing parties; and

· access to a company maintained real estate data room; which appears to be a contracts database only; of limited value for our purposes at this time;

· Lazard has also provided a “tracker” related to the marketing/sale process and parties contacted, which includes a broad swath of potential parties, both strategic and financial.

CR3 has identified and reviewed certain salient data files, and participated in multiple conference calls with Lazard and Alix to discuss the data and additional information requests. Amongst the data already received and reviewed, CR3 has obtained a copy of the “desktop appraisal” of the real estate assets performed by Cushman in Sept 2019. This report, which includes information previously made public in the Debtors’ SEC filings, includes good detail for our purposes, however, we are advised that the Debtors’ real estate advisor is reviewing and revising to account for current market conditions. That review process is expected to take a month or more.

Regarding the Bankruptcy Cases, we are advised that discussions between the Debtors and the Lenders regarding the business plan parameters are ongoing. CR3 and Okin Adams have requested a copy of the “business plan parameters” provided to the Lenders as stipulated under the RSA.

CR3 has reviewed, and continue daily sourcing and review of, public documents including those filed on the Bankruptcy Court docket and financial valuation information including related to peer companies. CR3 is working through analysis of all data to develop an understanding of the business plan, restructuring alternatives, and equity valuation. Where additional information is necessary, the Professionals will continue to follow up with Lazard, Alix or other case parties.

Sincerly,

Niko Celentano

Chairman

JCP ad hoc committee

[1] References to ECF numbered documents refers to pleadings or other notices filed in the Debtors’ Bankruptcy Cases and available through the Bankruptcy Court’s Electronic Case Filing or PACER system. Unless otherwise noted, the documents are available under the Debtors’ main case number, Case No. 20-202182. Pleadings are also available to the public free of charge through the Debtors’ claims and noticing agent, Prime Clerk, at https://cases.primeclerk.com/JCPenney/Home-DocketInfo.