J. Crew sues lenders over capital restructuring plans

Dive Brief:

J. Crew Group, Inc. on Wednesday filed suit in New York State Supreme Court, Commercial Division, alleging that an ad hoc group of lenders aims to disrupt its capital restructuring plans.
The struggling apparel retailer is in discussions with creditors to renegotiate its approximately $2 billion debt load, and Dec. 15 began to execute a plan to transfer its intellectual property to an unrestricted Cayman Islands subsidiary. J. Crew wants the court to declare that its moves are in full compliance under its term loan agreement, according to a press release.
Neither the transactions at issue nor the lawsuit impact J. Crew's ongoing use of its intellectual property or its business operations, the company said, adding that with more than $400 million in cash and asset-based lending availability and no near term debt maturities, it is “financially stable and focused on all opportunities to best position the business for long-term growth and success.”

Dive Insight:

Talk of J. Crew's possible debt restructure has been circulating since October, when Chairman and CEO Mickey Drexler reportedly began huddling with consultants at McKinsey & Co. on a strategy to turn the struggling apparel retailer around. The cash-strapped company has disappointed many of its most ardent, long-term loyalists as it has cut back on quality of make and fit, and recently gave up on its bridal business, which had appealed to younger brides looking for simpler, less costly wedding and bridesmaid dresses. The brand also looked to make a late push into athleisure.

Six years after TPG Capital LP and Leonard Green & Partners L.P. acquired J. Crew for $2.8 billion and took it private, the retailer looks to be the latest in a string of retailers whose turnaround capital needs bump up against the profit-taking goals of private equity owners. Talk of going public have died down in recent months as J. Crew has continued to falter, and those PE firms may now be seeking other ways to make good on their investment.

Blame the dismal fates of bankrupt apparel retailers The Limited and Wet Seal on the debt loads heaped upon them by their respective private equity owners, observers told Retail Dive. “These poor apparel chains end up one way or another in the hands of private equity — and in the end, there’s no company, no stores, no employees, and the private equity made money,” Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive earlier this year. “Congratulations. That’s how it works.”

In January, Limited Stores owner Sun Capital told investors that despite the apparel chain's closure, it made back its original $50 million 1.8 times over due to prior distributions and dividends, and will write down the remaining equity value of Limited Stores to zero.