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Bondholders rescind claim against JC Penney that it was in violation of bond agreement
NEW YORK, N.Y. - J.C. Penney Co. said Wednesday that bondholders who claimed that the department store chain was in violation of a bond agreement have withdrawn their notice of default.
The struggling retailer filed a lawsuit in Delaware court Feb. 4 to block the claim after receiving a letter from law firm Brown Rudnick LLP, which represented more than half of the holders of the company's 7.4 per cent bonds that are due in 2037. The law firm contended that Penney violated an inventory-secured credit agreement in January 2012 without providing security for the bondholders.
According to a regulatory filing by Penney in the Chancery Court of Delaware, the bondholders threatened to make Penney repay the $326 million owed unless it took steps to fix the alleged violations within 90 days. That created concern among investors worried that forcing Penney to make accelerated debt repayments would strain its finances.
Penney had argued that the claim was "invalid" and was "intended to create self-interested trading opportunities in the market."
The Plano, Tex.-based company had asked the Delaware judge on Monday to order a hearing over the claim during the week of April 1. But it said Wednesday that the counsel representing the bondholders had withdrawn its notice of default.
The withdrawing of the notice offers a bit of relief for Penney. The chain just finished a year of mounting losses and declining sales amid a transformation plan spearheaded by its CEO Ron Johnson that has turned off shoppers.
Penney reported dismal fourth-quarter results late last month capping a year where Penney amassed nearly $1 billion in losses and saw its revenue plunge nearly 25 per cent to $12.98 billion. Worries are growing that Penney won't be able to stem the losses in time to complete the transformation plan.
The company's stock rose 20 cents to $16.37 in after-market trading Wednesday after slipping 11 cents to close the regular trading session at $16.17. The stock has lost more than 60 per cent of its value since early February 2012 when it rallied on investor enthusiasm for Johnson's vision.
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