J. Crew Group Inc. filed for bankruptcy, unable to revive flagging sales of its preppy clothing line amid the coronavirus pandemic and crushed by debt rooted in a long-ago leveraged buyout.
The retail chain had obligations of almost $1.7 billion as of Feb. 1. The bankruptcy petition was submitted to the U.S. Eastern District of Virginia.
J. Crew agreed with a majority of creditors to convert $1.65 billion of debt into equity, and secured $400 million of new money from funds including Anchorage Capital Group, GSO Capital Partners and Davidson Kempner Capital Management, the company said on statement on Monday.
A Chapter 11 bankruptcy would allow J. Crew to stay in business, cut its borrowings and close weak stores to minimize costs. Normally that would include keeping the doors open for its J. Crew and Madewell stores, but sales at those outlets vanished when the coronavirus forced shoppers to stay home and nonessential businesses to shut.
Even before the virus spread, the company was struggling because shoppers were defecting to online merchants and consumer tastes were changing. J. Crew had been trying to rebound from some fashion misses and complaints of poor-quality clothing.
Asset Shuffle
The company managed to sidestep default once before in 2017, with a financial overhaul that included shuffling assets in a way that moved fast-growing Madewell out of reach of creditors.
The change did little to reverse the company’s fortunes, but it irked creditors and turned J. Crew’s name into a synonym on Wall Street for lopsided debt deals that leave lenders with weaker claims on company assets.
J. Crew was relying on an initial public offering of Madewell to raise capital and ease its heavy debt load, a legacy of the 2011 leveraged buyout by current owners TPG Capital LP and Leonard Green & Partners LP. The turmoil in financial markets put an end to that option.
The company operated 182 J. Crew-branded stores, 140 Madewell stores and 170 factory stores as of March 2, according to recent filings.
The case is J. Crew Virginia Inc., 20-32180, U.S. Bankruptcy Court, District of Eastern Virginia.
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