Going For The Kill: Is Carl Icahn Trying To Bankrupt Bill Ackman's J.C. Penney?

Tyler Durden's picture


By now everyone is familiar with slow-motion trainwreck from the afternoon of January 25 (keep that date in mind), when America's premier financial Jerry Springer channel pitted one against another hedge fund moguls Carl Icahn and Bill Ackman (for those three people who missed it, here it is again). Which is why we won't waste time recapping it, suffice to say that as a result of the hour-long spat, both Ackman and Icahn left the screamathon hating each other more than ever.

In what may or may not be a totally separate event, we fast forward to January 29, or the following Tuesday, when JC Penney received a Notice of Default from the law firm of Brown Rudnick, representing an ad hoc group of bondholders of JC Penney's 7.4% of Debentures due 2037 and who supposedly hold more than 50% of the issue, which according to Bloomberg amounted to some $325.6 million outstanding ($400 million at issue), or about 11% of the firm's gross debt of $2.97 billion.

What happened is that one or more bondholders accumulated a sufficiently large stake in one of JCP's bonds to where they could throw the company into involuntary bankruptcy which would then accelerate payment on all bonds if a court found the bondholder claim to be valid, and which would destroy the firm's equity due to cross-default provisions between the various bond classes, if only bondholders had a sufficiently real pretext. Which they did.

Specifically, Brown Rudnick alleges that the company defaulted on the bond indenture when in January 2012 it signed a credit agreement secured by the company's inventory "without providing for equal and ratable security for the Debenture holders." JCP only disclosed this letter after the close today, when it concurrently filed a lawsuit in Delaware Chancery Court seeking to block the bondholders' efforts to declare a default, saying the Notice of Default was without merit. To wit:

the granting of a security interest in inventory pursuant to the Credit Agreement does not constitute an event of default under the Indenture.  Pursuant to the Indenture, the negative covenant extends only to "principal property" -- which does not include inventory.  Furthermore, the Company has never had any loans outstanding under the Credit Agreement, and because the Indenture only covers "indebtedness for money borrowed," the Company`s entry into the Credit Agreement would not have triggered the Indenture provision in any case.  The Company has publicly disclosed for some 10 years that it has had various undrawn credit facilities secured by inventory with no bondholder allegations of violation of the Indenture.

A cursory read of the explanation provided by JCP's lawyers in response to the Notice of Default should make the JCP shareholders, all of whom would be immediately and massively impaired in the event the Involuntary Bankruptcy resulted in an official Chapter 11 filing, very nervous, since neither the "principal property" justification, nor the ridiculous excuse that the security stripping credit facility doesn't really count as it was never drawn on it, would withstand much scrutiny on cross before any but the most inexperienced of bankruptcy judges.

But what should make JCP stakeholders most nervous is that the man behind the ad hoc group may well be none other than the abovementioned corporate raider (and legendary Involuntary Bankruptcy mastermind) Carl Icahn, who is now hell-bent on making Ackman's life a living hell in the aftermath of the January 25 televized fiasco, and who will stop at nothing to crush and humiliate Ackman's hedge fund Pershing Square, which also happens to be the largest holder of JCP common stock with some 17.8% percent of the outstanding, or about $800 million worth of stock.

Note: we said may. Not is. Because we won't know for sure until Icahn confirm or denies.

Yet some things stand out.

First: the credit agreement was signed on January 2012: in other words, it had been in place for over a year. The fact that it was used as the reason for an involuntary bankruptcy filing only after the January 25 screamfest is very suspicious, especially since the defaulted indenture in question had been around since 1994. In other words, someone knew very well the leverage they would have by organizing an ad hoc group of debenture holders for a long time, and were merely biding their time for just the right moment.

Next: a quick glance at the TRACE activity in the 7.4% of 2037 shows that the biggest one day trading activity in the recent past was on none other than the abovementioned January 25. We would not be surprised at all if the bulk of said trading took the form of "wave it in" on the 47th floor of 767 Fifth Avenue.

But surely not even Icahn could promptly accumulate over $163 million bonds in a day (unless he had already been building up a stake), which is why he may have simply decided to collaborate with like-minded holders of the Debentures: either individuals who are seeking a prompt 20% take out (the bonds are trading at 84 cent of par), or simply to push the company into bankruptcy and use existing cash of some $500 million to satisfy bondholder claims, as well as to possibly take control of the company in a debt for equity. In both cases needing individuals who are not too fond of JCP, and certainly not fond at all of the Company's largest shareholder: one William Ackman.

A cursory look on Wall Street reveals quite a few funds who satisfy both criteria.

And finally, let's not forget that Icahn is one of Brown Rudnick's core clients, most recently representing the 76 year old billionaire in the case of Icahn against Trump Entertainment.

All of the above is, for now, conjecture, but it just fits too perfectly: the timing, the approach (so typical of the old school Icahn), and the target: because nothing would crush "retail expert" Ackman, who is openly feuding with Icahn over Herbalife, as a JC Penney bankruptcy. And nothing would bring greater validation to Icahn's claim that he "does not respect Ackman as an investor", uttered during the infamous January 25 debate.

We look forward to Mr. Icahn rejecting or confirming this hypothesis: the former case likely revealing who else is not a fan of Mr. Ackman's, while the latter pushing the Ackman vs Icahn soap opera to unprecedented and unseen before levels of inter-hedgefunder animosity, and shine even more light on the strange and confusing world where billionaires have so much money all they care about is destroying the reputation of those they perceive as their competition: a world in which ego is everything.

Of course, if we are right, and if indeed Icahn is behind this latest "Involuntary Bankruptcy" corporate raid, our sincerest condolences and best wishes to the JCP shareholders.

They will need it.

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Mon, 02/04/2013 - 23:55 | 3215445 Temporalist
Temporalist's picture

and no whiff of an original idea between them fart factories

Mon, 02/04/2013 - 23:29 | 3215381 otto skorzeny
otto skorzeny's picture

JCPenney should replace one bull dyke spokeslesbo(Ellen Degenerate) with an even bigger bull dyke spokeslesbo(Rachel Maddow) and try to lose even more flyover country consumers. JCPenny's custom line of "StrapOns by Ellen" didn't go over too well.

Tue, 02/05/2013 - 01:08 | 3215553 Freddie
Freddie's picture


They think we hicks in flyover country do not talk about their scum spokepeople.   I reacll Am Ex calling me to take their card. I told them I would support Ellen Degenerate and pleasantly said goodbye.

Tue, 02/05/2013 - 01:22 | 3215567 otto skorzeny
otto skorzeny's picture

why wouldn't they-Madison Ave advertising firms have the same east coast soddomite elite disdain for flyover country as Wall St and DC does. New Yorkers are pissed because  it takes so long  to get over flyover country to see their fellow immoral 12 Tribesmen in Hollywood.

Mon, 02/04/2013 - 23:30 | 3215383 jldpc
jldpc's picture

Not so fast; so long as the debtor can offer adequate protection re the collateral the BK court can hold off any secured claimant. An open but long standing unused credit line is no immediate threat in the eyes of a BK judge; requiring no immediate resolution which will be delayed for months and years in hearings, rulings and appeals. No doubt the stock may tank; but this is just so much falderal that the BK judge will see thru. They are not creditor judges; they are bankruptcy judges - almost always favor the debtor in wars like this . BEcause the debtors are employers; and the creditors are just not that status. Besides a junior or senior bond can be taken out with superpriority financing approved by the court. The possibilities for treatment under a plan of reorganization of bond debt are endless. do not count Ackman out.

Tue, 02/05/2013 - 01:21 | 3215574 rlouis
rlouis's picture

The outcome depends on who owns the judge. 

Tue, 02/05/2013 - 01:51 | 3215610 Excursionist
Excursionist's picture

You beat me to the punch with the counterpoints to this shrill sky-is-falling piece. 

People, even if you haven't read the bond paperwork and are unfamiliar with the applicable case law, use common sense - would a judge allow the company (and by extension, equity holders) to get ratfucked because of what's at best a small technicality?  Falls under the highly complex and arcane section of bankruptcy code called "No Harmus, No Foulus".

Opportunity to buy the fuckin' dip.

Tue, 02/05/2013 - 02:18 | 3215648 otto skorzeny
otto skorzeny's picture

"buy the fuckin' dip"? it's like buying a dead horse so you can continue beating it

Tue, 02/05/2013 - 12:20 | 3216460 Thisson
Thisson's picture

I agree with you, and I think the legal analysis in the original article is completely wrong.  The defense proffered here is quite strong and the creditor's grievance is a transparant pretext.

Mon, 02/04/2013 - 23:33 | 3215392 holdbuysell
holdbuysell's picture

Got Puts?

Mon, 02/04/2013 - 23:35 | 3215398 Cognitive Dissonance
Cognitive Dissonance's picture

Does this mean I'll have to find somewhere else to buy my extra tall shirts?

Mon, 02/04/2013 - 23:43 | 3215419 Jim in MN
Jim in MN's picture

And speaking of losing shitloads of money and calling it a business.....2nd biggest German bank takes billion dollar loss on quarter



Commerzbank expects massive fourth-quarter loss

Mon, 02/04/2013 - 23:50 | 3215431 TruthInSunshine
TruthInSunshine's picture

Zeee rain in Spain spreads quickly over zeee entire EU plain.

Tue, 02/05/2013 - 02:25 | 3215662 knukles
knukles's picture

And more accounting gimmicks, to boot, no?

Did they not also just apply for Level 2 membership on the LME?

Tue, 02/05/2013 - 03:18 | 3215697 zhandax
zhandax's picture

Commerzbank expects massive fourth-quarter loss

Guess that explains why Tepper was shopping his hybrid bid list late last week......

Tue, 02/05/2013 - 12:21 | 3216464 Thisson
Thisson's picture

Isn't this how the subprime crisis started?  With banks declaring losses and/or loss reserves?

Mon, 02/04/2013 - 23:44 | 3215420 Mark123
Mark123's picture

All these department stores are just subprime credit card rackets....who the hell shops there any more? 

Mon, 02/04/2013 - 23:50 | 3215433 Tinky
Tinky's picture

Once again, I urge all of you who are incessantly complaining about the impending economic collapse to gain a little perspective:




Tue, 02/05/2013 - 00:18 | 3215481 chindit13
chindit13's picture

Is it idle hands or easy money that's the Devil's Playground?

For those who have convinced themselves that the "elite" are working together to enslave the rest of humanity, look (or listen) no further than this tape to see how they really behave amongst themselves.  Schadenfreude is the name of the hill at Bohemian Grove,and everybody wants to stand atop it and raise his flag.

Tue, 02/05/2013 - 00:26 | 3215497 NoDebt
NoDebt's picture

Guys, big picture here for a moment, please. 

In the world of individual companies, this is what "heavyweights" can do over a Hatfield-and-McCoys style feud.  Has nothing to do with JCP's business viability or P/E ratios or any of those things.  JCP is "in play" now.  Where it lands, who knows.  I wouldn't touch it one way or the other, personally.  This is a fight you don't need to show up for unless you really have an inclination.

Now please remember that politicians are at least as vindictive as these two sonsofbitches and have sway over a lot bigger realm than just a few companies here and there.

Draw your own conclusions what is likely to happen from that.


Tue, 02/05/2013 - 12:04 | 3216388 secret_sam
secret_sam's picture

    JCP is "in play" now.  Where it lands, who knows.

Well....ya kinda know there's no UPSIDE potential as a result of these sorts of shenanigans.  Maybe a brief short squeeze would be possible, but who's going to base a trade strategy on that?

Tue, 02/05/2013 - 00:44 | 3215518 Cabreado
Cabreado's picture

See the Malignant Narcissists, the Sociopaths, the Pathologically Self-Absorbed...

when their illusion crumbles,

remember their behavior, which has no intent but to preserve the Self,
no utility but to destroy, eventually

and let it raise your hairs on end.


Tue, 02/05/2013 - 00:48 | 3215522 Printfaster
Printfaster's picture

Kabuki theater.

They both make money on bankrupting companies.  Bleed, bleed, bleed, and then eat.  Makes it kosher.


Tue, 02/05/2013 - 01:18 | 3215572 otto skorzeny
otto skorzeny's picture

2 jews fighting over a (JC?)penny-now you know how copper wire was invented

Tue, 02/05/2013 - 01:00 | 3215541 enloe creek
enloe creek's picture

and what about the emplyees and customers of j c penny
screw these billionares
tax capital raise tariffs

Tue, 02/05/2013 - 01:24 | 3215576 cornflakesdisease
cornflakesdisease's picture

Here's a great video symbolizing how Bernake and Geithner have handled our economy.  The funny things is, look at how few ice creams come spilling out of the treasury . . .



Tue, 02/05/2013 - 01:34 | 3215588 billsykes
billsykes's picture

Wait till these cocksuckers have to battle the 1% that will become the new 99%. Will make Russia look honest.

Things would have to return to barbarianism to be civilized. What great times we live in.


Tue, 02/05/2013 - 01:35 | 3215589 “Rebellion to t...
“Rebellion to tyranny is obedience to God.”-ThomasJefferson's picture

Two filthy, thieving Jews, scratching and clawing over nickels and dimes.  If they were both on fire, I wouldn't piss on either of them.

Tue, 02/05/2013 - 01:40 | 3215595 sbenard
sbenard's picture

Is there anyone on Wall St with a more nefarious and tainted name than Carl Icahn? I struggle to think of one! I would love nothing more than to see him lose his shirt in this melodrama! Then we could be done with him -- FOREVER!

Tue, 02/05/2013 - 02:31 | 3215667 Yamaha
Yamaha's picture

Yes - Soros.....

Tue, 02/05/2013 - 01:41 | 3215596 rlouis
rlouis's picture

At great cost to himself, through the screamfest, Ackman showed millions of people that Ichan is a Class A A-hole.  Attacking JCP this way confirms it for anyone that may not have been thoroughly convinced that Ichan isn't worth the price of the Saturday NYT. Of course that doesn't say anything for Ackman, either.

A characteristically disgraceful demonstration of Ichan's avarice is what he did to TWA.

I can swear there ain't no heaven, but I pray there ain't no hell.
Swear there ain't no heaven, pray there ain't no hell,

("And When I Die" is a song written by American singer Laura Nyro. It was first recorded by American folk group Peter, Paul and Mary in 1966. Nyro then recorded it on her 1967 debut album More Than a New Discovery. However, the song is probably best known for its third version by American rock group Blood, Sweat & Tears,)...wiki


Tue, 02/05/2013 - 03:45 | 3215714 PaperWillBurn
PaperWillBurn's picture

Have you seen what Ackman has done to HLF? Same shit..and he's going to get pounded on both ends. HLF down 16% in pre on a bs story and it ended up closing green.lol Ackman



Tue, 02/05/2013 - 01:50 | 3215603 Number 156
Number 156's picture

As the money run out, its no longer rich vs. poor, but rich vs. rich.

Tue, 02/05/2013 - 01:52 | 3215611 sitenine
sitenine's picture

Note to self: Do not fuck with Carl Icahn!

Tue, 02/05/2013 - 02:11 | 3215639 otto skorzeny
otto skorzeny's picture

who cares-these fucking money guys have all of the charisma and charm of a 2x4. i'd rather watch Ax Men  than these two cunts cat-fight it out on CNBC or anywhere else

Tue, 02/05/2013 - 10:42 | 3216125 quadcap
quadcap's picture

Here's another "don't fuck with Icahn" with a disproportionate number of downvotes.  WTF?  Carl, are you paying for sock puppets here?

Tue, 02/05/2013 - 10:42 | 3216126 quadcap
quadcap's picture

Here's another "don't fuck with Icahn" with a disproportionate number of downvotes.  WTF?  Carl, are you paying for sock puppets here?

Tue, 02/05/2013 - 12:25 | 3216478 Thisson
Thisson's picture

Paraphrasing Princess Bride: "That phrase - I don't think it means what you think it means."

Tue, 02/05/2013 - 02:10 | 3215633 Rentier
Rentier's picture

let's hope so be the end of homo penneys

Tue, 02/05/2013 - 02:14 | 3215642 Eternal Complainer
Eternal Complainer's picture

That little school girl Ackman, is about to get his ass buggered over by that dirty old bastard!

Tue, 02/05/2013 - 02:22 | 3215654 imaginalis
imaginalis's picture

They are Milken each other for everything they can get

Tue, 02/05/2013 - 02:37 | 3215673 Atticus Finch
Atticus Finch's picture

Icahn has always been good at increasing the unemployment rate and ruining the lives of tens of thousands of families. a past master

Tue, 02/05/2013 - 02:40 | 3215677 SoundMoney45
SoundMoney45's picture

These two parasites have done nothing productive in their lives.

Tue, 02/05/2013 - 04:32 | 3215735 ebworthen
ebworthen's picture

Two spoiled brats having a pissing match over an iconic American brand at the expense of employees, customers, and the country.

This is the level we have sunk to.

Tue, 02/05/2013 - 05:31 | 3215758 SilverMoneyBags
SilverMoneyBags's picture

Ichan only cares about his ego. He doesn't give a rats ass who he hurts in the process. Ackman punked him and he has held a 10 year grudge. Let it go.

Tue, 02/05/2013 - 07:51 | 3215813 myptofvu
myptofvu's picture

But wouldn't it just be easier to crush him by organizing a short squeeze against his Herbalife positions?

Tue, 02/05/2013 - 10:04 | 3216031 goldenbuddha454
goldenbuddha454's picture

Icahn=Pitbull, Ackman=Teacup Poodle

Tue, 02/05/2013 - 10:09 | 3216045 booboo
booboo's picture

Icahn/Ackman, Wall Streets version of 2 Girls One Cup

Tue, 02/05/2013 - 10:41 | 3216118 earnulf
earnulf's picture

If they would just take a couple billion or so of that money they just have laying around and buy physical silver for delivery, they would shove a precious metal stake into the heart of the banksters as the whole house of cards came tumbling down.

Guess they just want to settle for schoolyard fights with each other than wreck the world as we know it.

So what's on the next cable channel?   Trump vs Maher in a battle of bets or Geraldo Live!  Beyounce's other gig?



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