J Crew planning public offering of Madewell denim brand

Bloomberg

J Crew Group Inc plans to spin off its Madewell denim chain in a public offering, the company announced in a filing, five months after announcing it was considering such a move.
The number of shares to be offered and the price range for the proposed offering haven’t yet been determined, according to the filing. The amount of the IPO is listed in the filing as $100 million, a placeholder that will likely change. Chinos Holdings Inc, which owns J Crew, expects to use any proceeds to pay down debt and for general corporate purposes.
Madewell would follow Levi Strauss & Co as the next denim company to tap public markets. It will have to gauge investor demand, however, as most apparel retailers’ shares have lost value this year.
In J Crew’s case, however, debt-related needs may take precedence over timing.
“The IPO could garner a substantial valuation and help pay down a meaningful portion of the over $1.7 billion in debt,” said Raya Sokolyanska, an analyst at Moody’s Investors Service. “But the ultimate ability to address J Crew’s highly leveraged capital structure depends on the public market’s receptivity to apparel retailers and the company’s operating performance.”
Chinos will be renamed Madewell Group Inc before the IPO is completed, the company said. As part of the proposed transaction, Chinos will incur new debt and use the net proceeds it receives from the offering to repay its remaining debt obligations previous to the spinoff of the business from J Crew.
The possibility that J Crew will file for bankruptcy is listed in the filing as a risk for the IPO. J Crew’s creditors could request that the court consolidate its assets and liabilities with Madewell assets and liabilities, according to the filing. The consolidation would allow the creditors to satisfy their claims from the combined
assets as part of J Crew’s filing, it said.
Madewell’s current Chief Executive Officer Libby Wadle and Chief Financial Officer of
J Crew Group Vincent Zanna will stay in their roles just until the separation, according to a filing. Michael Nicholson, who was named interim chief executive officer of J Crew Group in April, will also take on the interim CFO role when Zanna leaves.
Madewell, which has resonated with millennial shoppers, has opened a few stores in recent months and has plans to open at least six more by early next year from Southern California to Tampa, Florida. The company currently has about 130 locations.
The expansion comes as its sister company J Crew shuttered dozens of locations and rival mall stores including Gap Inc. are lowering store counts.