JC Penney Files Action for Injunctive, Declaratory Relief
J. C. Penney Company, Inc. ("jcpenney") (NYSE: JCP) announced today that it received a letter dated January 29, 2013 from Brown Rudnick LLP claiming to represent holders of more than 50% of the Company's 7.4% Debentures due 2037. The letter purports to be a Notice of Default under the Indenture for these Debentures dated April 1, 1994 between J. C. Penney Company, Inc. and U. S. Bank National Association as trustee. The Company strongly believes the Notice of Default is invalid and utterly without merit.
Brown Rudnick LLP alleges that the Company violated the Indenture by entering into an inventory-secured Credit Agreement in January 2012 without providing for equal and ratable security for the Debenture holders. However, the granting of a security interest in inventory pursuant to the Credit Agreement does not constitute an event of default under the Indenture. Pursuant to the Indenture, the negative covenant extends only to "principal property" -- which does not include inventory. Furthermore, the Company has never had any loans outstanding under the Credit Agreement, and because the Indenture only covers "indebtedness for money borrowed," the Company's entry into the Credit Agreement would not have triggered the Indenture provision in any case. The Company has publicly disclosed for some 10 years that it has had various undrawn credit facilities secured by inventory with no bondholder allegations of violation of the Indenture.
The Company today filed an action for injunctive and declaratory relief in support of its position in the Court of Chancery of the State of Delaware. The action seeks an order enjoining the trustee from declaring an event of default as well as an order declaring that the Company is not in default of the Indenture governing the Debentures.
Ken Hannah, chief financial officer of jcpenney said, "We believe this notice of default is invalid, completely without merit and is intended to create self-interested trading opportunities in the market, and we will therefore vigorously defend the interests of jcpenney and all of our constituencies in all appropriate forums."
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