Preppy retail clothing chain J.Crew Group became the first retail victim of the coronavirus pandemic and resulting economic downturn.
The company on Monday filed for bankruptcy, partially a victim to a steep drop-off in sales but also a byproduct of a crushing $1.65 billion debt load rooted in a long-ago leveraged buyout that was supposed to turn the retailer back around.
In a statement, J.Crew said it has reached a deal with a majority of its lenders to convert $1.65 billion of debt into equity, which it will then use to liquidate its holdings, including existing stock and other assets, to pay back lenders and extract itself from leases and other obligations.
Lenders led by Anchorage Capital Group, Blackstone Group’s (BX) - Get Report GSO Capital Partners and Davidson Kempner Capital Management are providing $400 million of financing that will allow the company to maintain operations during the Chapter 11 restructuring, the statement said.
Like many U.S. retailers, J.Crew shut its stores in March as the fast-spreading coronavirus prompted government officials to mandate nonessential businesses to close. Other retailers including J.C. Penney (JCP) - Get Report and Neiman Marcus are also exploring bankruptcy proceedings.
J.Crew steered around default in 2017 with a financial overhaul that included shifting assets that moved its fast-growing Madewell clothing chain out of reach of creditors. J.Crew reportedly was relying on an initial public offering of Madewell to raise capital and ease its heavy debt load.
Madewell will remain part of J.Crew as part of the transaction support agreement the company reached with its lenders, according to the statement. About 71% of the company’s term loan lenders and 78% of its so-called IPCo notes agreed to the deal, the company said.
The company operated 182 J.Crew-branded stores, 140 Madewell stores and 170 factory stores as of March 2, according to recent filings.
J.Crew’s roots date back to 1947 with the opening of Popular Merchandise, which sold low-priced women's clothing marketed through in-home demonstrations. It expanded as a sales-catalog operation in the 1980s.
The company changed its name to J.Crew in 1983; it opened its first retail store in the South Street Seaport district in Manhattan in 1989.