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(Reuters) – J. Crew Group Inc filed for bankruptcy protection on Monday with a plan to hand over control to lenders, adding to a list of brick and mortar retailers pushed to the brink by widespread store closings in response to the COVID-19 pandemic.
The New York-based chain, known for the preppy clothes sometimes worn by former first lady Michelle Obama, filed for bankruptcy in federal court in Virginia with an agreement to eliminate $ 1.65 billion of debt in exchange for transfer the property to the lenders. Overall, approximately $ 2 billion of your total debt will be canceled and exchanged for approximately 82% of the equity in the retailer under the terms of the plan, according to court records.
J. Crew, who employed about 13,000 people before an April licensing program, is the first high-profile retailer to seek bankruptcy protection since the coronavirus spread worldwide, leading to government officials. to order that the companies considered non-essential close temporarily.
It is probably not the last. Department store chains Neiman Marcus Group and J.C. Penney Co Inc are considering bankruptcy filings amid the crisis, Reuters previously reported.
Anchorage Capital Group, GSO Capital Partners of Blackstone Group Inc and Davidson Kempner Capital Management hold significant portions of J. Crew’s senior debt and are on-line to take control of the company.
They are also providing about $ 400 million in new financing to help J. Crew’s operations as he navigates Chapter 11 bankruptcy proceedings, the company said. J. Crew is expected to emerge from bankruptcy in September under his agreement with lenders.
In addition to canceling the debt, J. Crew plans to permanently close some stores, though the final number it plans to close has yet to be determined, according to court records and a person familiar with the matter.
The virus outbreak forced the company to temporarily close its nearly 500 J. Crew, J. Crew Factory and Madewell stores, leading to a loss of sales of nearly $ 900 million, according to court records. Additionally, the economic consequences and market turmoil resulting from the public health crisis resulted in the company’s shelf plans for an initial public offering of its Madewell business.
Madewell will continue to be part of the J.Crew Group and Libby Wadle will continue in her role as executive director, the company added.
J. Crew hoped to take the proceeds of the IPO to reduce his debt instead of using bankruptcy to address his financial difficulties, but the pandemic derailed those plans, according to court records.
J. Crew opened its first store in midtown Manhattan in 1989 and expanded across the United States and abroad, eventually going public on the New York Stock Exchange in 2006 and becoming a household name.
J. Crew was deprived in 2011 by TPG and Leonard Green & Partners in a leveraged purchase of approximately $ 3 billion, and their investments will now be phased out, according to court records.
Before the pandemic, J. Crew was already struggling alongside other traditional retailers to compete amid a consumer shift to online shopping.
It also suffered after a strategic price increase misstep that deactivated some buyers. Talks in 2014 to sell J. Crew to Japan’s Fast Retailing Co, the owner of clothing chain Uniqlo, fell apart.
The retailer had avoided bankruptcy in 2017 in an agreement with creditors that reduced total debt and postponed maturity dates on obligations.
But their struggles continued. Millard “Mickey” S. Drexler, a chain leader long known for his fashion acumen who also once led Gap Inc, admitted that he misjudged how technological developments would alter the retail landscape.
He stepped aside as CEO of J. Crew in 2017, and last year he resigned from his position as chairman of the board.
Reports from Mike Spector in New York, Subrat Patnaik and Shubham Kalia in Bangalore; Additional reports by Noor Zainab Hussain; Bernard Orr, Shounak Dasgupta and Lisa Shumaker edition
