J.C. Penney Co. (JCP) asked a Delaware judge to schedule a trial in April over its dispute with bondholders threatening to declare the company in technical default, seeking an order in the meantime to maintain the status quo.
J.C. Penney sued bondholders Feb. 4 after lawyers claiming to represent holders of more than 50 percent of its 7.4 percent bonds due in 2037 accused the company of defaulting by signing a credit agreement in January 2012 without providing proper security for investors. Bondholders set a May 5 deadline to remedy the alleged default, J.C. Penney said in its complaint.
“The timing exigencies and overwhelming economic equities warrant a status quo order to prevent bondholders from declaring an ‘event of default’ based on a wholly meritless default notice,” J.C. Penney said in the filing yesterday.
J.C. Penney said in a filing last month that the improper default claims could put the company at risk of demands for payment on more than $2.8 billion in debt. The company’s credit ratings have been slashed in the past year as Chief Executive Officer Ron Johnson’s turnaround plan struggles to take hold.
Moody’s Investors Service rates the company B3, six levels below investment-grade, with a “negative” outlook. Standard & Poor’s has an equivalent grade on the company following three straight quarters of sales declines of at least 20 percent.
J.C. Penney has $325.6 million of the 7.4 percent notes outstanding, according to data compiled by Bloomberg. The debt traded yesterday at 78.50 cents on the dollar to yield 9.728 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.
The default claims were made by lawyers at Boston-based Brown Rudnick LLP on behalf of anonymous bondholders, the company said in court papers.
James Stoll, one of those attorneys, didn’t immediately return a call for comment on the retailer’s request for trial.
Since the complaint was filed last month, the bondholders’ lawyers have reneged on an agreement to postpone a 90-day cure period until a final resolution on the merits of the case, J.C. Penney said. The bond trustee also notified J.C. Penney on March 1 that it intended it withdraw because of conflicts arising out of its role as a lender under the credit facility, the company said in the filing.
The trustee and the bondholders have also refused to withdraw the letter, suspend the cure period or to agree on a trial schedule, the company said.
“The bondholders’ strategy -- delay, delay, delay while the clock runs on events they set in motion -- is fundamentally inequitable, if not bad faith,” lawyers for J.C. Penney said in the filing. “The obstructionist tactics by bond arbitragers and a paralyzed trustee, if permitted to continue, will result in serious irreparable harm to JCP.”
The case is J.C. Penney Co. Inc. v. US Bank National Association as Indenture Trustee, 8276, Delaware Chancery Court (Wilmington).
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