J.Crew parent bankrupt; deal swaps $1.65 billion of debt for equity

By Caroline Salls

Pittsburgh, May 4 – J.Crew Group, Inc. parent company Chinos Holdings, Inc. and some of its affiliates made a pre-packaged Chapter 11 bankruptcy filing on Monday in the U.S. Bankruptcy Court for the Eastern District of Virginia to implement a transaction support agreement reached with holders of 71% of J.Crew’s term loan and 78% of its IPCo notes, as well as with its financial sponsors, according to a news release.

Under the agreement, the company said it will restructure its debt and deleverage its balance sheet, positioning J.Crew and Madewell for long-term success.

Restructuring terms

Under the terms of the support agreement, the lenders will convert $1.65 billion of debt into equity.

About $2 billion of the company’s pre-bankruptcy secured term loans and secured notes will be equitized into 82% of the reorganized debtors’ equity.

Holders of term loans and IPCo notes, which include 13% senior secured notes due 2021 and senior secured new-money notes due 2021, that are qualified institutional buyers or accredited institutional investors and that join the support agreement within 10 business days of the bankruptcy filing date may elect to provide a portion of debtor-in-possession loans and new term loans.

New term loan lenders will receive 15% of the common equity of the reorganized debtors and warrants to acquire additional new common shares after the plan effective date.

General unsecured creditors that provide goods and services necessary to the operation of the reorganized company and enter into a trade agreement within 30 days of the bankruptcy filing date will receive their share of $50 million in cash, subject to a 50% cap on claims.

Other general unsecured creditors, including for claims on account of the Chinos debtors’ rejection of unexpired executory contracts and lease agreements, will receive their share of $4 million in cash if the class votes to accept the plan or $1 million if the class votes to reject the plan, subject to a 50% cap on claims.

All existing equity will be cancelled, and holders will receive no recovery.

Under a timeline set in the support agreement, Chinos must file its plan of reorganization and related disclosure statement by May 18, the plan must be confirmed by Sept. 1, and the plan must take effect by Sept. 11.

DIP financing

In conjunction with the bankruptcy filing, Chinos said it has secured commitments for a $400 million debtor-in-possession financing facility, as well as a commitment for exit financing, provided by existing lenders Anchorage Capital Group, LLC, GSO Capital Partners and Davidson Kempner Capital Management LP, among others.

Wilmington Savings Fund, FSB is the administrative and collateral agent.

The DIP facility will mature on the one-year anniversary of the bankruptcy filing date, provided that if the exit conversion occurs, the loans will not be paid in cash, but will be converted into exit financing.

Interest will accrue at the Base rate plus 700 basis points or Eurodollar plus 800 bps.

Subject to court approval, the DIP financing, combined with the company’s projected cash flows, is expected to support its operations during the restructuring process.

As part of the support agreement, Madewell will remain part of J.Crew Group, Inc. Libby Wadle will continue in her role as chief executive officer of Madewell.

“This agreement with our lenders represents a critical milestone in the ongoing process to transform our business with the goal of driving long-term, sustainable growth for J.Crew and further enhancing Madewell’s growth momentum,” J.Crew Group CEO Jan Singer said in the release.

“As we look to reopen our stores as quickly and safely as possible, this comprehensive financial restructuring should enable our business and brands to thrive for years to come.”

Anchorage Capital Group CEO Kevin Ulrich said in the release “The significant deleveraging contemplated by this agreement, coupled with J.Crew Group’s strategy to strengthen its robust e-commerce platform to drive continued growth in its direct-to-consumer segment, will position the company for future success.

The company said it has filed a series of customary first-day motions seeking to maintain its operations during the restructuring process to help facilitate a smooth transition into Chapter 11.

Debt details

According to court documents, Chinos has $1 billion to $10 billion in both assets and debt.

The company’s largest unsecured creditors are Deloitte Consulting of New York, with a $22.75 million professional services claim; Cosmic Gear Ltd. of Kowloon, Hong Kong, with a $14.31 million general unsecured claim; Sterling Apparel Ltd. of San Po Kong, Hong Kong, with a $13.68 million general unsecured claim; RGM Fashion Ltd. of Kwai Chung, Hong Kong, with a $12.63 million general unsecured claim; Fashion Accessories of Gurgaon Haryana, India, with an $11.09 million general unsecured claim; ung Seung Co Ltd. of Seoul, with a $10.25 million general unsecured claim; Aquarelle Clothing Ltd. of Quatre Bornes, Mauritius, with a $7.82 million general unsecured claim; China Ting Garment Mfg. (Group) of Kwun Tong, Hong Kong, with a $7.73 million general unsecured claim; First Glory Ltd. of Cheung Sha Wan, Hong Kong, with a $7.51 million general unsecured claim; and United Infinite Corp. Taiwan Branch of Taipei City, Taiwan, with a $7.14 million general unsecured claim.

Weil, Gotshal & Manges LLP is serving as legal counsel, Lazard is serving as investment banker, and AlixPartners, LLP is serving as restructuring adviser to J.Crew Group.

J.Crew is a New York-based retailer of women’s, men’s and children’s apparel, shoes and accessories. The Chapter 11 case number is 20-32181.

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