J.Crew Files for Bankruptcy

Key insight:

Apparel retailer J.Crew Group’s parent company Chinos Holdings filed for Chapter 11 bankruptcy protection early Monday morning in Virginia.

The company said it reached an agreement with a majority of the holders of both its loan and bonds, as well as its private equity backers TPG and Leonard Green, to exchange $1.65 billion in debt for equity.

It’s the first retailer with a significant amount of institutional debt to file for bankruptcy in the U.S. since the pandemic began.

J.Crew was at the top of the credit rating agencies’ watch lists as the pandemic began. The apparel retailer was particularly vulnerable because it was attempting to refinance debt tied to a March IPO of its fast-growing Madewell brand.

The arrival of Covid-19, however, threw a wrench in its plans. The IPO was initially postponed until April and then cancelled altogether.

As credit rating agency Fitch’s David Silverman noted back in March, pulling off an IPO and a refinancing would have been difficult for any mall-based apparel retailer.

“This agreement with our lenders represents a critical milestone in the ongoing process to transform our business with the goal of driving long-term, sustainable growth for J.Crew and further enhancing Madewell’s growth momentum,” said Jan Singer, J.Crew’s CEO, in a statement.

The former CEO of Victoria’s Secret, Singer was named head of the company in late January.

“Throughout this process, we will continue to provide our customers with the exceptional merchandise and service they expect from us, and we will continue all day-to-day operations, albeit under these extraordinary COVID-19-related circumstances,” she said.

“As we look to reopen our stores as quickly and safely as possible, this comprehensive financial restructuring should enable our business and brands to thrive for years to come,” she added.

The purveyor of preppy clothing is clearly not alone, as the ranks of distressed retailers continues to grow. In addition to J.Crew, Neiman Marcus, JCPenney and Lord & Taylor are said to be weighing their financial options in the midst of the pandemic, including bankruptcy.

Regardless, J.Crew remains a well-known name, though in need of a turnaround, and Madewell a potential growth opportunity. The restructuring, with most of the debt removed from its balance sheet, should help with efforts to revive the business.

J.Crew in the announcement also said that it secured commitments for debtor-in-possession (DIP) financing of $400 million and committed exit financing by existing lenders Anchorage Capital Group, GSO Capital Partners and Davidson Kempner Capital Management, in addition to others.

The company said the financing, pending court approval, should provide enough capital to support its operations through the restructuring process.

Private equity firms TPG and Leonard Green took J.Crew private in 2010 for $3 billion.



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