J.C. Penney, the struggling department store chain, is on the brink of collapse as discussions with landlords for a rescue deal have hit an impasse. The company is now facing bankruptcy unless a takeover agreement can be reached with lenders within the next few days.

Negotiations between J.C. Penney and mall owners Simon Property Group Inc and Brookfield Property Partners LP came to a halt over the weekend due to issues surrounding lease terms. However, precise details were not provided during a court hearing on Monday.

Despite the setback, J.C. Penney’s lawyer, Joshua Sussberg, assured that lenders are still interested in saving the company, which has a rich history of 118 years in operation and employs over 70,000 individuals. He emphasized that the fate of J.C. Penney will be determined by the ongoing negotiations over the next 10 days.

However, Andrew Leblanc, a lawyer representing the lenders, expressed concerns about the challenges involved in reaching a deal within the limited timeframe, describing it as a “heavy lift” with multiple hurdles to overcome. The two sides have set a deadline of September 10 to reach an agreement.

Simon Property Group has not yet provided any comments, while Brookfield declined to comment on the matter.

Earlier in May, J.C. Penney filed for bankruptcy after the COVID-19 pandemic forced the closure of its nearly 850 stores. Now, the company is racing against time to finalize a deal that would involve dividing the business into three parts. This would include the operating company, which comprises the retail business, intellectual property, and hundreds of stores. Lenders would then take control of two real estate investment trusts by forgiving a portion of J.C. Penney’s $5 billion debt. One trust would handle 160 properties, while the other would oversee the company’s distribution centers.

Initially, J.C. Penney aimed to strike a deal with Simon and Brookfield for the takeover of its retail operations. However, negotiations faced obstacles, including an unresponsive offer made by the company over the weekend.

As a result of the stalled talks, J.C. Penney will have to close more stores that were previously hopeful of being saved, according to Sussberg.

During the court hearing, U.S. Bankruptcy Judge David Jones urged all parties involved to put aside their egos and negotiating postures to reach an agreement. He emphasized the seriousness of the situation and warned that failure to continue discussions with lenders could lead to the closure of all J.C. Penney stores.

Apart from hedge funds and private-equity firms financing the bankruptcy case, J.C. Penney’s lenders have agreed to consider forgiving debt to gain control of the company’s retail operations and the two initial real estate investment trusts.

While buyout firm Sycamore Partners and Saks Fifth Avenue owner Hudson’s Bay Co have held discussions with J.C. Penney for the acquisition of its retail business, no deal has been reached thus far.

Despite the challenges and the limited time frame, J.C. Penney is still engaging in talks with potential buyers. However, as time runs out, it remains uncertain whether the company will be able to secure a deal and avoid collapse.

(Useful links:
1. Business Insider
2. CNBC)