Once beleaguered retailer J C Penney is on the comeback trail, and has made solid progress in improving its finances and revenues over the last year or two. One major stumbling block in the iconic retailer’s comeback, however, is the firm’s massive $5 billion pension obligation.
The good news is J C Penney management has taken a major step towards resolving that thorny issue as the company announced on Friday it was reducing its $5 billion pension obligations by around a third through a lump-sum offer to participants and a new deal with Prudential to manage employee pensions.
Industry analysts note that the firm has bought out employee pension plans on other occasions.
Gates Capital Management's ECF Value Funds have a fantastic track record. The funds (full-name Excess Cash Flow Value Funds), which invest in an event-driven equity and credit strategy, have produced a 12.6% annualised return over the past 26 years. The funds added 7.7% overall in the second half of 2022, outperforming the 3.4% return for Read More
Details on J C Penney plan to cut pension obligations
According to a statement from the firm Friday, more than 12,000 retirees and beneficiaries decided to take the latest deal and opted to receive a lump-sum in lieu of recurring pension payments, and close to 1,900 former employees with deferred vested benefits also chose to take the offer. Of note, the payments will be made in November after the final settlement amount is calculated.
The pension obligation restructuring plan also includes a deal with insurance company Prudential whereby J C Penney will transfer a portion of its pension obligations and assets to Prudential. However, the statement noted the proposed transfer would leave the remaining pension plan overfunded.
Also of interest, the annuity transaction is scheduled to close by the end of the year, and the final size of the deal is contingent on the plan remaining overfunded at closing.
The steps taken by the company will shrink J C Penney’s pension obligations by around a third and see an equal number of participants leave the program.
Statement from J C Penney
The retailer noted in a statement on Friday that: “Although the plan has been fully funded since 2009, owing to successful execution of the company’s asset de-risking strategy, market conditions were favorable to reduce the obligation now.”