Mall owners Simon, Brookfield close to buying J.C. Penney out of bankruptcy

A shopper heads into a J.C. Penney store in Seattle in 2017.

Associated Press

NEW YORK — Mall owners Simon Property Group and Brookfield Property Partners are close to a deal to buy department store chain J.C. Penney out of bankruptcy and keep the chain running.

Penney’s lawyer Josh Sussberg announced the tentative pact, which will save roughly 70,000 jobs and avoid liquidation, during a brief hearing in bankruptcy court Wednesday.

Sussberg said that the Penney

would have an enterprise value of $1.75 billion, including $300 million in cash from the two landlords and $500 million in new debt.

He noted that a letter of intent including more details of the pact will be filed with the bankruptcy court in the next day. Penney will be left with $1 billion in cash after the deal is completed, he said.

“We are all committed to moving this quickly and saving J.C. Penney,” Sussberg said during the court hearing.

The 118-year-old department store based in Plano, Texas, filed for Chapter 11 bankruptcy protection in mid-May, one of the biggest retailers to do so since the pandemic temporarily shut down non-essential stores around the country. As part of its bankruptcy reorganization, Penney said it planned to permanently close nearly a third of its 846 stores in the next two years. That would leave it with just over 600 locations.

More than 40 retailers have filed for Chapter 11 bankruptcy this year, including more than two dozen retailers since the coronavirus outbreak. Among the hardest hit have been department stores, which were already struggling to respond to shoppers’ shift to online shopping.

The tentative agreement between two big landlords and Penney is the latest example of mall owners’ increasing willingness to buy out their pandemic-hit tenants. Mall owners are facing big challenges as stores close or are unable to pay rent. The exit or closing of retailers also triggers a clause that would allow other tenants to break their leases or get a rent reduction without facing penalties.

In fact, a retail venture owned by licensing licensing company Authentic Brands Group and Simon agreed to purchase 200-year-old clothier Brooks Brothers for $325 million last month.

Neither Simon

nor Brookfield

responded to requests for comment regarding the tentative deal with Penney.

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Weekend reads: An early warning sign for Tesla’s stock

The tech-heavy Nasdaq Composite Index, after a long and steady rally this year, suffered its biggest two-day loss since mid-March to close out the week.

Before those declines, there were warning signs from Wall Street analysts who ordinarily shy away from rating any stock a “sell.” Shares of Tesla

had more “sell” ratings than “buy” ratings, and so did 62 other stocks in the Russell 1000 Index

William Watts explains why it’s too early to call the tech-stock decline a correction.

Related Tesla and tech stories:

• Tesla’s stock story is one of newbs and rubes — but not quite the way you think it is

• Tesla’s stock sinks again to kick off a correction after disclosure of another large seller

• After Apple and Tesla stock splits, read this before jumping in

What the eviction moratoriums really mean

The U.S. Centers for Disease Control has ordered a moratorium on evictions through the end of the year to keep people from being displaced during the COVID-19 crisis. Treasury Secretary Steven Mnuchin expects the moratorium to protect about 40 million renters. But if you rent your home, you need to understand important details of the order to make sure you are eligible, as Jacob Passy explains.

Related:California eviction moratorium is ‘a real nightmare’ for renters to understand — here’s what you need to know

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The desire to retire — when expenses are high

Alessandra Malito helps a man 15 years older than his wife who wishes to stop working. They are both high earners, but they have a problem with expenses.

Worried about voting by mail?

Look to Oregon.

Debt and inheritance

Quentin Fottrell — MarketWatch’s Moneyist — helps a woman who is concerned about how much of her husband’s debts she might be liable for if he dies. These affairs may not be so simple, depending on which state you live in.

Getty Images

Don’t Social Security benefits keep increasing over time?

Maybe not.

What to do when your online trading service is down

Several online brokerage services, including Robinhood, Charles Schwab
TD Ameritrade

and E-Trade

went down or slowed Aug. 31. Michael Brush has tips on how to lower your risk before these events and what to do when they occur.

Estate tax planning

Inheritance planning isn’t only for the wealthy. The tax implications for your inheritors can be difficult for them. Bill Bischoff — MarketWatch’s Tax Guy — shares four ways to ease the burden on those you love.

Vanguard revises a tax estimate ‘downward by a factor of 15’

Vanguard founder John Bogle supported a small tax on financial transactions, but Vanguard itself argued against it in January. But now the mutual fund giant has revised its estimates of how much investors and traders would actually pay, by quite a bit. Michael Edesess explains the math and why Vanguard is still against a transaction tax.

Supplied by the company

Bored with the stock market? Here’s an easy alternative

If you would like to invest in something real, away from the stock and real-estate markets, Lina Saigol may have something for you. She describes a new and easy platform that lets you invest in rare collectibles for as little as $5.

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Saga has missed a trick by spurning private equity. It should have followed AA’s route

Saga rejected a takeover offer in favor of raising fresh equity and bringing back former boss Roger De Haan

Hauke-Christian Dittrich/Zuma Press

Don’t lock them out: lock them in until you have a deal.

Shutting out private equity bidders was a favored tactic during the heady days of the debt-fueled buyout boom in 2003. So it’s a strange one to resort to when times are tough and private capital should be welcome.

Yet that’s what Saga

has decided to do.

The troubled provider of insurance and cruises to the over-50s rejected a recent 33 pence-a-share takeover offer from a consortium of two unnamed U.S. private equity groups, which it said was“unsolicited and highly conditional.”

Instead, Saga has chosen to tap its shareholders – which includes dozens of retail investors – for £150 million ($201 million) in an equity raise to cope with its spiralling debts. As part of the plan, Sir Roger De Haan, the son of Saga’s founder Sidney, will return to the company’s board as chairman, replacing incumbent Patrick O’Sullivan.

Saga prides itself on looking after its loyal customer base. However, many of those loyal customers are retail shareholders who ironically, as a result of Saga’s proposal, will be diluted by more than 40% compared with the 140% premium they would have been received from the spurned private equity bidders’ offer.

Saga’s convoluted proposal has De Haan, who sold Saga for £1.35 billion in 2004,  investing £75.5 million to buy 324 million shares, or an average entry price of 23 pence a share, to give him a 17% stake. In addition, by underwriting a third of the £75 million placing he could invest a further £25 million at 15 pence, lowering his average entry price to 20 pence and increasing his stake to 25%.

That could be enough to block any future bids for the company, which may be in need of further investment in the future. The cruise industry – among those hit hardest by the pandemic – doesn’t look like it will recover anytime soon.

Private equity has abundant supplies of dry powder to inject into troubled companies. The same can’t be said for shareholders who will be expected to stump up more cash in coming months as many companies look to raise equity to cope with the impact of the coronavirus pandemic on their operations, which has left many of them reliant on borrowing to meet expenses.

That may be why AA

believes entertaining buyout offers might be a better route to take. The roadside recovery group, which was once Saga’s sister as part of Acromas, has £2.65 billion of net debt with £913m due to be repaid over the next two years. The company is pursuing a dual-track process – considering both offers from buyout groups while simultaneously looking at raising new equity.

On Tuesday, AA granted its potential bidders – which include a joint offer from Centerbridge Partners Europe and TowerBrook Capital, as well as separate cash bids from Platinum Equity Advisors and Warburg Pincus International – an extra four weeks to make an offer for the company.

Now is the right time for Saga to learn from its ex-sibling.

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An ‘extreme’ August on the stock market might be telling us something about the November election

August marked the best month for the S&P 500

since 1986 and for the Nasdaq Composite

since 2000.

But it’s a new month and autumn and winter are coming, with a U.S. election race starting to heat up and the COVID-19 battle and all that comes with it. That brings us to our call of the day, from BTIG’s chief equity and derivatives strategist Julian Emanuel, who says an extremely strong August for stocks — the S&P 500 is up 7.2% through Aug. 28 — could be telling us something about who wins the White House in November.

“At first glance, August strength plays well into Donald Trump’s reelection — in the three months prior to November elections, positive S&P 500 returns have accompanied incumbent party presidential victories 85.7% of the time,” Emanuel tells clients in a note.

But going back to 1928, when stocks rose 5% or more in August, and the June to August return was top 25%, the market often struggled in September and October. “And when the S&P 500 is down from the end of August through the Election, the incumbent party has lost the White House on all six occasions,” he notes.

Raising the stakes further, is notes political, social, public health and economic uncertainty against ”a Nasdaq-100 arguably in the midst of a potentially a “blowoff” top move” — a fast and high climb followed by a sharp drop. But he says it is hard to tell if we’re at the start, middle or end of that.

That is laid out by his chart of the Nasdaq-100

and the Cboe NASDAQ-100 Volatility Index (VXN), a key measure of market expectations of implied swings in the tech-heavy gauge.

“The last time both NDX and VXN rose together to this degree was January 2018, prior to the period known as ‘Volmageddon,’ which was when Wall Street’s so-called fear gauge — the Cboe Volatility Index

surged to a level not seen in 20 years.

His advice: own calls — a bullish bet on an asset that gives an investors the right but not obligation to buy the underlying asset a certain price by a specific date — on the Invesco QQQ

exchange-traded fund that tracks the Nasdaq-100 Index. He also suggests owning puts — a bearish bet that works the opposite of calls — on the iShares Russell 2000 ETF

The chart

Goldman Sachs says year-to-date, 43% of female-managed funds have outperformed their benchmarks versus just 41% of those with no female managers.

A team led by Goldman’s chief U.S. equity strategist David Kostin explains: “Men may be from Mars and women from Venus, but female-managed funds tilt toward info tech while non-female managed funds prefer financials.”

Read more here

Random reads

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Redditers dish on best industry secrets.

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Johnson & Johnson adds to debt frenzy, borrows $7.5 billion to buy Momenta

The Johnson & Johnson logo is displayed outside the company’s headquarters in New Brunswick, N.J.

Bloomberg News

Johnson & Johnson leveraged its top AAA credit ratings on Thursday to borrow $7.5 billion worth of cheap funding for its buyout of Momenta Pharmaceuticals, Inc.

J&J, which makes drugs, consumer goods and medical devices, stands as the only other major U.S. corporation, aside from Microsoft Corp
still carrying top AAA credit ratings, which NPR’s Planet Money explains are akin to the highest possible score in consumer credit.

In theory, that means J&J should have access to cheaper funding than companies with lower credit ratings that are considered a higher default or downgrade risk, although the pandemic-fueled boom in corporate borrowing has blurred the lines of what might be considered “low” or “high” yields.

Read: A binge? Bulge? Or just the new normal for debt in America as Fed helps spur string of records

Demand for J&J’s

six-part corporate bond deal helped the 130-year-old-plus conglomerate lock in some of the lowest-cost funding available in years.

Final pricing details pegged the yield on the shortest five-year slug of bonds at 0.57% and at 2.49% for the longest 40-year class of debt.

With the Federal Reserve’s pandemic support, U.S. investment-grade companies have gone on a record $1.4 trillion bond-borrowing spree this year at record-low yields, issuing about 74% more debt than the same period of last year, according to BofA data.

BofA Global created this chart to show investment-grade bonds hitting a fresh 24-year low this summer on a yield basis. Bond prices move in the opposite direction of yields.

The new financing mostly will be used by J&J to purchase Momenta

in a cash, tender offer valued at $6.7 billion, which was announced Wednesday and sent shares of Cambridge, Mass.-based biotechnology company 69% higher to close at $52.12 per share.

Under terms of the agreement, J&J will pay $52.50 for each outstanding Momenta share. The deal is expected to close in the second half of 2020.

The remainder of the debt financing was pegged for general corporate purposes.

Moody’s Investors Service gave the debt financing a AAA rating, but with a negative outlook. While the credit-rating firm expects J&J’s pharmaceutical business to generate “mid-to-high single-digit growth” over the next few years, that contrasts with lower growth forecasts for its other business areas, which also face risks tied to “unresolved litigation involving opioids and talc,” that could constrain free cash flow “over multiple years.”

Johnson & Johnson, Moderna Inc.
Pfizer Inc.

and AstraZeneca PLC
have been racing to get trials under way to help accelerate the development of a COVID-19 vaccine, with J&J planning to start a 60,000 person worldwide trial by late next month to test if it can protect people against the virus.

Vaccine hopes have been one catalyst helping to lift major U.S. stock indexes back to, or beyond, their prior all-time highs before the pandemic, with the S&P 500 index

this week marking its quickest recovery in history.

Related: Don’t look now, but here comes the vaccine news tidal wave

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