This week’s two biggest bankruptcy stories show how the broader consequences of the coronovirus recession may differ in different regions of corporate America.
The first is the restructuring of the troubled department store
This week said its negotiations with buyers would be on a standstill, and the retailer’s creditors are now preparing an independent bid.
Kirkland & Ellis’ attorney Joshua Sausberg, who represented the retailer at Monday’s court hearing, said “they were owned by a merchant who is the owner of more than 160 JC Penney locations.” “Certain postures and ego, however, are not necessarily set aside. And during the last two weeks we have hit an impasse.”
A group of reportedly interested bidders was headed
Simon Property Group
Brookfield Property Partners
(BPY), according to The Wall Street Journal, the retailer’s two largest landowners.
The breakdown in negotiations has prompted the company’s creditors to prepare their own independent bids, Sausberg said. The creditor group, which includes hedge funds H / 2 Capital Partners, Brigade Capital Management and Sculptor Capital Management, will now pursue “bidding Jessie Penney alone on a stand-alone basis”, although “it is possible that the bidders Will be one of “come back to the transaction. ”
JC Penney and its creditors planned to reject the terms of such a deal on September 10, Sausberg said, with the aim of completing the transaction within a month. That process may involve closing more store space. The retailer plans to close “several” stores that were initially on the planned closures list, but remain open as part of negotiations with bidders, he said.
The liquidation appears to be, in other words, despite the initial interest from a landlord, in a retailer acquisition spree.
Things could not be more different in the Virginia bankruptcy of satellite operator Intelsat.
On August 31, Intelsat announced that it had been approved to spend $ 400 million in cash to purchase a division of the in-flight wireless provider
(GOGO). It plans to purchase Gogo’s commercial aviation business, or a business that provides wireless Internet service, such as airlines flights.
When asked by the court last week for permission to complete the deal, Inlesat said it had already received approval from its creditors and lenders. It successfully adjusted the terms of its $ 1 billion bankruptcy loan so that it could use some cash for the acquisition.
In-flight wireless Internet services use the type of satellites powered by Intlas, so the deal will be “steep and integrated” [in-flight connectivity] Professional… With additional resources and scale to support continued growth and innovation as air travel demands, ”the deal was announced by Gogo President and CEO Oakley Thorne in a press release.
It is somewhat unusual for a company in bankruptcy court to have this type of acquisition. And no deal is done without risk.
The most obvious risk is that the epidemic has reduced commercial air traffic. And a June filing from Gogo raises more questions about the outlook for its commercial aviation business.
On June 5, Gogo announced a change in the terms of its contract with Delta to provide free in-flight wireless to passengers. As part of that change, Delta said it intends to “split its fleet between Gogo and a competitor.” For the three months ended June 30, Delta was responsible for 16% of consolidated revenue, according to Delta Gogo’s latest quarterly filing.
“While we don’t miss the idea of a competitor joining Delta, this amendment gives us time to complete … effectively add to our network offering and capacity and allow us to compete effectively for the fleet in question “” Thorne said in a statement at the time.
“We have spoken at the highest levels with the Delta Working Group, and believe that both sides are very enthusiastic about Intelsat / Gogo [commercial aviation] Combination, ”David Tolley, Chief Financial Officer of Introsat, said in an email statement from Barone. “We hope and will continue to plan to provide solutions to most of Delta’s customers in the future, as Gogo has already been doing for a very long time. To hold that position, we have to continue to outperform against other options , And this is what we hope to do. ”
Gogo did not immediately respond to a request for additional comment.
On the other hand, the provision of free in-flight Wi-Fi may be good for Intelsat because more Wi-Fi usage means more satellite usage. Raymond James analyst Rick Prentice said on 1 September that Intelsat is a “natural candidate” to handle Gogo’s business. So the jury is still out on the deal.
For now, it may be most notable that the company moves the deal exactly one week after seeking court permission for it.
The Speedie timeline underscores the contrast between Intellate’s bankruptcy and Jesse Penney’s, and provides another piece of evidence supporting a clear coronovirus trend: retailers are insecure, and media and communications companies are not.
Write Alexandra Skaggs Alexandra at .scaggs @ barrons.com