Jessie Penney on Tuesday filed drafts of its sales agreements, stating that significant progress has been made toward its planned exit from Chapter 11 bankruptcy in late November.
The Plano-based company also revealed for the first time that the new owner of the 118-year-old department store chain would turn Penny’s defined benefit pension plan into a federal program that insured it. Other retired medical and life insurance benefits were also denied under the sale agreement.
The move affects more than 52,000 current and future retirees who are vested in the plan.
At the end of last year, the plan had $ 3.467 billion in assets, and its accumulated benefit obligation was $ 3.2 billion. Penny’s defined benefit plan is fully funded and insured by the Pension Benefit Guarantee Corp., which will assume responsibility for the scheme’s assets and benefits to retirees.
PBGC has caps on monthly pension payments, but it is unclear how the Penny monthly pension will be affected based on various formulas. Some higher paid officers in the past could see a decrease in their monthly pension checks. PBGC has not responded to the request for information.
The plan rejection was not a big surprise, but it is another area of concern for Penny retirees and employees. Penny had attractive retirement benefits, not including supplemental plans insured by PBGC. The current and former employees have filed a claim in the insolvency court over the retirement fund free of insolvency.
The Penny operating company is being sold to Simon Property Group and Brookfield Asset Management for cash and debt holdings.
The individual 160 stores and six distribution centers that Penny owns are going to their secured lenders led by H / 2 Capital. Another group of debt-holders led by Aurelius Capital Management may also bid for those real estate assets.
Penny had said that he would file his disclosure statement and restructuring plans on Monday. Instead its lawyers submitted drafts. “Most of the business issues have been resolved, but the master lease agreement that is part of the real estate sale is still being negotiated,” said Penny’s attorney Josh Sussberg of Kirkland & Ellis.
Penny will lease 160 stores and six distribution centers, with US Bankruptcy Judge David Jones known as “one of the longest, most complex lease agreements man has ever known.”
The court has confirmed the hearing for two days before the vote of thanks on 24 November, with objections to be filed by 17 November.
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