J. Crew speeds up timeline for refinancing moves

Dive Brief:

  • J.Crew Group, Inc. on Friday announced that it has accelerated the deadline for its term loan lenders to consent to its amended term loan agreement that was announced June 12. Its bond prices have risen since the brand announced plans to restructure its debt through a swap of all outstanding senior pay-in-kind notes due in 2019 (representing $566.5 million​) for an equity stake and bonds that mature in 2021. 

  • The company had previously requested consents by 5:00 p.m. on June 16 and is now requesting consents by 1:00 p.m. that day. To facilitate the plan, the company last week also asked its term-loan lenders to dismiss, with prejudice, litigation relating to the assignment of its intellectual property rights, which J. Crew late last year attempted to shield by transferring them to an unrestricted Cayman Islands subsidiary. 

  • J. Crew last week also said first quarter revenues fell 6% to $532 million as same-store sales plunged 9%, worse than its 7% decline in the same period a year ago. Operating loss in the quarter was $153.3 million compared with operating income of $7.3 million in Q1 last year.

Dive Insight:

J. Crew is in a “parlous state,” according to GlobalData Retail Managing Director Neil Saunders, who compared recent executive changes at J. Crew — including the planned departure of creative director Jenna Lyons and the bombshell announcement last week that CEO Mickey Drexler will step down next month — to rearranging deck chairs on the Titanic.

“There is always an argument for change, but change by itself is neither a strategy nor a solution — it needs to be accompanied by a blueprint for reinventing the business,” Saunders said. 

The brand is wobbling under massive debt, which has hampered its ability to stage a comeback, according to Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates Inc. 

The company’s move to back up its restructuring with its brand equity demonstrates its value, he said, and that’s why the company was so keen to protect that from its lenders, who then cried foul in court. That its securities have risen since its debt swap announcement last week suggests that bondholders are amenable to the plan. But its challenged financial position has also meant unfavorable terms from worried suppliers, Davidowitz warns.

“If this were a normal company, with cash in the bank, I 100% believe that three years from now J. Crew would be rolling," Davidowitz told Retail Dive. "But what supplier is going to deal with him in a normal way? Private equity, the first thing they do is put you on the edge. And when you’re an apparel chain, living on the edge is deadly because you can’t fix a business in two years. They borrow billions, they have 80,000 lawyers and now they’re trying — although the court will decide this — to extract from the lenders the only value that will be there, which is the intellectual property of J. Crew and Madewell."

"For J. Crew, in my opinion, it’s over, because there is no way to deal with the debt," Davidowitz added. "It’s impossible.”

J. Crew isn’t necessarily kaput, despite its high debts, Saunders argues, though any moves it makes are supremely critical, and time is of the essence. "It is ... desperately struggling and now needs a team that can rekindle many of the things that once underpinned its success," he said. "With losses mounting, this is a task that needs to be tackled with the utmost urgency.”

The effects of changes presumably coming from Lyons replacement Somsack Sikhounmuong and Drexler replacement Brett, however, “may stimulate fresh thinking,” Saunders said, but in the short-term, could “more likely to prove disruptive than helpful.”

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Filed Under: Corporate News
Top image credit: J Crew