The J.C. Penney store at Stonebriar Centre in Frisco, Texas.

The J.C. Penney store at Stonebriar Centre in Frisco, Texas. (Louis DeLuca/The Dallas Morning News/TNS)

DALLAS - J.C. Penney is reopening stores in Texas, Florida, Indiana and Ohio on Wednesday as the clock is ticking in its bankruptcy, the largest so far since the coronavirus pandemic shutdown the economy.

As Penney enters its first week of bankruptcy, details emerge of a difficult path for exiting Chapter 11 that includes the spinoff of its real estate into a separate company and permanently closing stores while it's still trying to reopen locations.

A total of 153 of its 846 stores will be open this week, including 34 stores in Texas, 12 in Florida, 7 in Indiana and 11 in Ohio.

A few more local stores will open but not all of its stores in Dallas-Fort Worth. Stores will open Wednesday in Frisco, Burleson, Mesquite, Rockwall, Sherman and Waxahachie. Arlington, Fairview and Alliance Town Center in Fort Worth have been open since earlier this month.

Two big deadlines loom if Penney is going to exit in November, the date it put on a proposed timeline.

But time is limited to meet various steps, and triggers are built into the lending agreements to convert the bankruptcy to a liquidation, either on July 14 or August 15.

By mid-July, Penney has to persuade the lenders financing its bankruptcy to give it the next $225 million of the $450 million of debtor-in-financing that it secured and is required to enter a court-led restructuring. The lenders will release that money if they support Penney's business plan to exit bankruptcy, which has to be filed in June. Then, in August, if Penney doesn't have the support of lenders to finance the retailer when it leaves bankruptcy, the agreement calls for the bankruptcy to convert to a liquidation.

The company's biggest lenders include H/2 Capital Partners, Sixth Street Partners, KKR & Co. and Ares Management Corp. Some of the investors overlap with leveraged buyouts of other retailers that ended poorly over the past decade.

Until earlier this month, Sixth Street was funded by TPG, which was part of the group that sold Neiman Marcus in a 2013 leveraged buyout sale of the Dallas-based luxury retailer to a group led by Ares. Neiman Marcus filed for bankruptcy this month, as did another TPG-led leverage buyout, J.Crew.

H/2 Capital is hedge fund that invests in real estate.

KKR led the leveraged buyout of Toys R Us, which ended up liquidating in 2018.

Penney is working on its business plan, which hasn't yet been filed with the court, but a preliminary version was filed Monday with the Securities and Exchange Commission. Penney said in that filing that it could permanently close as many as 242 stores of its 846 stores. Most of those locations, or 192 stores, are in leased space, and the remaining 50 are in buildings owned by Penney.

Before the pandemic, the proposed go-forward fleet of 604 stores had higher average sales and higher profitable sales.

Also, Penney proposes in its plan to sell a 35% stake in a separate new real estate company to raise cash. That's actually part of its lending agreement. It also said it's going to sell and lease back distribution centers to raise more cash. The plan calls for Penney to issue new stock in addition to the equity in the real estate investment trust.

Penney owns a lot of real estate, and that property is likely drawing interest. Some stores in dying malls are finding new life as online fulfillment centers. Many malls that were ailing before the pandemic are still in great suburban markets, but other newer shopping centers were built nearby, making them obsolete.

Amazon, which has already converted some former mall stores into online operations, is looking at Penney's, according to a report Monday in Women's Wear Daily. Penney also has 11 distribution centers that would be in demand by lots of retailers, not just Amazon, as the industry makes a secular shift online.

Joshua Sussberg, Penney's attorney, said during a hearing Saturday afternoon in bankruptcy court that the company will work around the clock to deal with all the issues.

"I am very worried about this, and why I'm having a hearing on a Saturday," said U.S. Bankruptcy Court Judge David Jones during the webcast hearing with 300 people on the line. The judge approved customary first-day motions that allowed Penney to continue paying employees, utilities and other operating expenses, including the honoring of gift cards.

Jones, who is also presiding over the Neiman Marcus bankruptcy case in Houston, reminded the lawyers, management, advisers, lenders and creditors on the call that "retail bankruptcies have to move quickly regardless of the strength of the debtor."

"I want to see this work. You have 85,000 people (Penney employees) depending on all of your skill sets and talents," Jones said.

Penney's stores are opening with reduced hours Monday through Saturday from noon to 7 p.m. and Sunday from 11 a.m. to 6 p.m. Penney has added pandemic-related new practices and training, including additional cleaning and Plexiglass shields.

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