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JCPenney Resolves Sephora Dispute, Skips Second Debt Payment

After a brief legal skirmish in a Texas court, JCPenney has “reaffirmed” its partnership with Sephora USA to jointly operate nearly 600 Sephora stores inside JCPenney (SiJCP) beauty departments.

“Both companies worked constructively to resolve outstanding legal matters and have agreed to mutually beneficial revisions to their joint enterprise operating agreement,” according to the release. Details of the revisions were not disclosed.

In using the terms “revisions” and “amendment,” JCPenney confirms that changes have been made to the prior agreement. In its filing for a restraining order, JCPenney said that Sephora had threatened to terminate the contract as of April 28, 2020, if JCPenney did not agree to an April 2021 end date. Without being specific, the ailing department store chain said “the current term of the Agreement lasts several more years.”

In a federal court filing responding to JCPenney, Sephora said JCPenney was using the Texas state court to gain leverage “to delay and change the basis for good faith wind-down discussions that have been underway between the parties for weeks, so that JCP can take advantage of an impending bankruptcy.”

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JCPenney was on a bankruptcy watch even before the COVID-19 crisis because of its crushing debt load and sluggish performance. In a disclosure filed on May 7, JCPenney “elected not to make the approximately $17 million interest payment” on a senior secured term loan credit facility, “in order to evaluate certain strategic alternatives.” The company had already skipped a debt payment of $12 million due on April 15.

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