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JCPNQ Shareholder Update.

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Large Green Member Level  Sunday, 08/02/20 09:25:30 AM
Re: None
Post # of 28250 
JCPNQ Shareholder Update.


TO: JC Penney Shareholders

FROM: Ad Hoc Committee of Equity Interest Holders

DATE: 8/2/20

RE: Status Update Regarding J.C. Penney Bankruptcy

This memorandum is provided by 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 update regarding certain deadlines (“Milestones”) established under agreements related to financing obtained by the Debtors’ during these 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

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.

BACKGROUND

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). 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.”

Update Regarding JC Penney Performance and Sale Process

On July 29, 2020, the Bankruptcy Court conducted hearings to consider various creditor motions requesting relief or permission to take certain actions against the Debtors outside of the bankruptcy proceedings. Each of these motions were either withdrawn or overruled and do not represent significant events. However, prior to commencing the hearings, the Debtors provided a status update regarding the Debtors’ recent business performance and announced their intent to file proposed bidding procedures through which the Debtors may sell the operating portion of the Debtors’ business. A pdf copy of the Debtors’ presentation is available at https://cases.primeclerk.com/JCPenney/Home-DocketInfo?DocAttribute=5867&DocAttrName=HEARINGMATERIALS

Regarding the Debtors’ business operations, the Debtors have confirmed that performance continues to exceed projections. Specifically, the Debtors have accumulated approximately $400 million more than cash that initially projected.

On the heels of this positive performance update, the Debtors announced an intention to move quickly to a sale process. The Debtors emphasized that the proposed sale is not a liquidation but would be conducted as a “going concern” sale. We will continue to monitor these events if / when they take place and analyze what, if any, effect they have on equity in this case. Josh Sussberg from Kirkland & Ellis also made a point to speak of an article that was written in the NY Post, pointing out many inaccuracies that it included. I myself reached out to Lisa Fickenscher from the NY Post, the author of this article, the day after it broke and spoke to her about it's inaccuracies.

While not confirming who made the bids, or the amount of the bids, the Debtor mentioned that they have not accepted any of the bids as of yet or made a decision on which bid was the leading bid.

We are working to understand the overall value and the transaction and whether or not they will be sufficient enough to provide a return for shareholders. We are also discussing alternatives that may be realistic. As the Debtors noted during the hearing, the Committee’s professionals have been provided certain details regarding the indications of interest or bids already received and will continue to monitor and evaluate all proposed transaction structures and the consideration for the same. The Committee will continue to monitor the negotiations related to the anticipated sale process in order to assess the impact of such discussions and any related agreements upon the rights of equity interest holders in these Bankruptcy Cases.

Overall, we are encouraged by the Debtors financial performance during these cases. The company continues to build cash which was at 1.263B (8K filed 7/14). Inventory stood at 2.016B (8K filed 7/24) and Real Estate (according to the companies own appraisals in dkt 513-1) was valued at 3.7B ("lit value"). These are baseline incontrovertible numbers before building up further for Enterprise Valuation. JCP's e-comm business had sales of 1.5B in 2019 (5/15 8K). Assuming EBITDA of 15% for e-comm, this part of the business alone generated 225M in 2019. Using an estimate of e-commerce multiples of 5x-10x, this business alone is worth 1.1B - 2.2B. We continue to believe in the value of this business as a going concern. I have been contacted from Forbes, Bloomberg, WWD, and many others who also see the value and believe in this 118 year old company.

https://www.forbes.com/sites/walterloeb/2020/07/29/jcpenney-is-at-a-crossroad-and-the-clock-is-ticking/#ca7969b2cc01

https://finance.yahoo.com/news/j-c-penney-hurtles-toward-213942907.html

We will continue to work to obtain a return for equity despite the Debtors' indicating there may not be sufficient value for a return to equity.

Sincerely,

Niko Celentano

Chairman

JCP ad hoc equity committee





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