This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

The Deal: J.C. Penney's Dilemma: To File or Not File

NEW YORK ( TheStreet) - Distressed investors piling into department store chain J.C. Penney (JCP - Get Report) could be taking note of the company's liquidity crunch and figuring on either a turnaround or an eventual bankruptcy.

When hedge fund manager William Ackman left the company's board after a public feud over who should be managing the retailer, he promptly dumped his 18% stake through a Citigroup (C)-underwritten share sale at $12.90 a piece.

JCPenney shares were gaining 0.1% to $14.24 in Friday trading.

But instead of staying away, other big-name hedge funds piled right on. Richard Perry, who knows a thing or two about retail distressed investing--last year with the help of Ron Burkle's Yucaipa Cos. LLC he engineered a debt-for-equity swap for Barney's Inc. with then owner Istithmar World PGSC--has an 8.62% stake in the company. J. Kyle Bass' Hayman Capital Management LP took a 5.2% stake, while Glenview Capital Management LLC revealed a 9.1% stake.

That doesn't mean, however, that those investors don't have their eye on the downside. Hayman Capital, for one, has reportedly picked up J.C. Penney debt in the form of investing in the company's secured loans.

One industry banker even has a timeline for when the retailer should start thinking about formulating plans for a bankruptcy filing. If the company isn't seeing momentum build by October, this person said, then it should start consulting its advisers about a trip to court.

What will tip the scales in favor of bankruptcy is when factors such as CIT Group Inc. begin to lose confidence in J.C. Penney, which would damage its ability to buy inventory. For now, however, the banker said, factors still expect to be paid so it's currently under no pressure to file. (Factors buy a company's accounts receivable, or invoices, at a discount.)

And one distressed investor, David Tawil, co-founder of hedge fund Maglan Capital LP, which does not have a stake in J.C. Penney, said it would be better for the company to file for bankruptcy sooner, rather than later. Tawil, a former bankruptcy attorney at Skadden, Arps, Slate, Meagher & Flom LLP and Davis Polk & Wardwell LLP, and then a fund manager at Credit Suisse Group analyzing distressed situations, said that when companies wait until they run out of cash to file for bankruptcy, they end up liquidating, rather than reorganizing.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
JCP $8.93 -1.11%
WMT $67.21 0.03%
AAPL $93.24 -0.41%
FB $117.81 -0.21%
GOOG $701.43 0.82%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs