J Crew seeks debt swap to buy time as sales dive continues

Women's clothing and apparel sits on display inside a J. Crew Group Inc. fashion clothing store ahead of its official opening, in Paris, France, on Wednesday, March 4, 2015. J. Crew is increasingly looking overseas for growth, opening stores in London, Hong Kong, Canada and Paris and also expanding its offshoot Madewell brand. Photographer: Marlene Awaad/Bloomberg

Bloomberg

J. Crew Group Inc., struggling from almost three years’ worth of declining sales, asked bondholders to extend the maturity of $566.6 million in notes and said it planned to
settle a lawsuit filed by lenders.
The debt-laden retailer started a private offer to exchange 2019 pay-in-kind notes for an equity stake and bonds that mature in 2021. At least 95 percent of bondholders must accept the proposal for it to proceed.
The retailer is struggling to adjust as shoppers flock to online commerce amid changing tastes. It announced last week that long-time Chief Executive Officer Mickey Drexler is leaving his post and James Brett, the 48-year-old president of Williams-Sonoma Inc.’s home furnishings chain West Elm, is taking the helm in an effort to contain the damage.
J. Crew must now convince its lenders to agree to the debt transactions, Bloomberg Intelligence retail analyst Noel Hebert said.
“To me, I think everybody’s incentives are moving to be properly aligned, and it’s something that should be able to get done,” Hebert said. “It’s just a function of, has the investor changed such that they’re just more resistant to giving any ground whatsoever?”
Sales in stores open at least a year, plus e-commerce and shipping fees, fell 9 percent in the quarter that ended April 29, J. Crew said Monday in a separate statement. Total revenue dropped 6.3 percent to $532 million.
In addition to the debt tender, a second offer will be made to J. Crew’s term-loan lenders asking them to dismiss the pending litigation against the company in exchange for meaningful compensation. The New York-based retailer is facing a battle with those lenders, who have accused it of unfairly moving its valuable brand name out of reach when it put its intellectual property assets in an unrestricted subsidiary last year. The new bonds will be issued from that subsidiary and use the IP assets as collateral.
The company’s cash grew to $104.6 million at the end of the quarter from $54.7 million a year earlier, while total debt narrowed less than 1 percent to $1.5 billion.
“While we are disappointed with our first-quarter earnings, we are optimistic regarding the work we have underway to improve the business,” Drexler said in the statement. He cited J. Crew’s “clear vision” and said Brett will position the retailer for “long-term success.”
Drexler is staying on as J. Crew’s chairman.

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