Dive Brief:

• J. Crew on Wednesday won a partial court victory in a lawsuit over the retailer's transfer of brand assets to a Cayman Islands subsidiary as part of a debt swap transaction last year. A New York judge narrowed the suit, brought by two financial firms that hold J. Crew debt, and absolved the loan agent in the transaction.

• The plaintiffs were holdouts in a plan to trade senior notes due in 2019 for an equity stake and bonds that mature in 2021. J. Crew said last June that 88% of lenders consented to the plan, but the firms maintained that the deal couldn't go forward without unanimous consent of its lenders. As The Wall Street Journal reported Thursday, the J. Crew deal "alarmed high-yield investors because it raised questions about how much leeway borrowers have to tap assets and secure new debt."

• The debt swap was designed to buy time for J. Crew's turnaround​​.At the end of the fourth quarter, J. Crew's total debt was $1.71 billion, up from $1.51 billion at the same point last year. Transaction costs ($36.6 million) and debt repayments ($27 million) drained coffers — cash and cash equivalents were $107.1 million compared to $132.2 million at the end of the fourth quarter last year, the company said last month.

Dive Insight:

J. Crew has been hobbled by debt for years now, and that in turn has hamstrung turnaround efforts and forced the debt swap drama of last summer.

It wasn't the only turmoil for the retailer last year, though. Jenna Lyons, the brand's influential president and executive creative director since 2012, walked out the door in April, setting off a series of departures that culminated in Mickey Drexler's June exit as CEO. 

With the retailer now led by former West Elm President James Brett, also a merchant, J. Crew has stabilized somewhat in the ensuing months. The retailer's Q4 total revenues rose 2% to $710.6 million, and it's 3% same-store sales decline was an improvement from the 5% decrease in the year-ago period. J. Crew is currently attempting to grow to "hyper-scale" its Drexler-established Madewell brand. And for good reason: While Q4 sales at J. Crew's flagship brand fell 4% and same-store sales fell 7%, Madewell top-line sales rose 32% and same-store sales surged 17%.

But currently, Madewell is a tiny enterprise, and the retailer, with very little time and few levers to pull, is seen as a bankruptcy risk. Two major questions hanging over J. Crew now are whether the flagship itself can bounce back and whether its little sibling can grow fast enough to help the larger enterprise overcome its balance sheet issues, Mark Cohen​, director of retail studies at Columbia University's​ Graduate School of Business, told Retail Dive in an email last month.