J.C. Penney Co., which filed for bankruptcy last month, won court approval to free up $30 million in Nike products that the sportswear giant had been holding back in a dispute over allegedly unpaid pre-Chapter 11 bills.
Under the terms of the deal, approved on an interim basis by U.S. Bankruptcy Judge David Jones, J.C. Penney will pay $2 million of the $19.5 million Nike claims it is owed in the bankruptcy. The $2 million represents a pay-down of about 10 percent of the approximately $19.5 million Nike Claim.
Nike had agreed to deliver $30 million in product upon entry of the interim order on June 16 and also agreed to ship another $50 million after the final order had been entered and becomes non-appealable. A hearing on a final order is scheduled to be held on June 25.
Penney did reveal that it has agreed to pay Nike $2 million out of $25 million previously approved by the bankruptcy court for payment to “critical vendors.” The parties also agreed to set Nike’s pre-bankruptcy claim at about $19.5 million and to waive any potential claims Penney has against Nike to claw back money paid to the vendor prior to the retailer’s May 15 Chapter 11 filing.
In arguing in the court document for special treatment for Nike, Penney said, “Nike has long been one of JCPenney’s strongest brands with products spanning multiple categories—Men’s, Women’s, Kids, Shoes & Home. And in recent months, Nike has become even more important as shifting consumer preferences during the COVID-19 pandemic have made the activewear category one of the best performing categories online and in reopened stores, running materially positive even in these unprecedented circumstances.
“Given Nike’s powerhouse performance, the Debtors’ merchandising plan calls for significant Nike product in fiscal year 2020, the large majority of which has not yet shipped and assumes that product will be sold for millions of dollars in post-petition profits to the Debtors.
“Losing out on this opportunity to receive Nike merchandise would be a terrible blow to the Debtors’ bottom line. But, as one of the most globally recognized and sought-after brands, Nike holds real leverage in setting trade terms. Unlike the vast majority of JCPenney’s other vendors, Nike is not a party to the Debtors’ standard terms and conditions or trading partner agreements governing trade relations. In fact, Nike is not a party to any contract that obligates Nike to ship merchandise to JCPenney.”
Photo courtesy J.C. Penney
