J.Crew Files for Chapter 11 Bankruptcy, Expects to Eventually Reopen Stores
NEW YORK CITY — J.Crew Group Inc., which operates the J.Crew and Madewell fashion retail brands, has filed for Chapter 11 bankruptcy protection. The company hopes to restructure its debt while aiming to eventually reopen its stores in the aftermath of the COVID-19 pandemic. Chinos Holdings Inc., the parent company of J.Crew, filed the voluntary petitions for protection on Monday in the U.S. Bankruptcy Court of the Eastern District of Virginia.
In a statement, the New York City-based retailer said its lenders and stakeholders agreed to convert $1.6 billion of debt into equity. Typically in a debt-to-equity conversion, lenders receive ownership of a company in exchange for cancelling existing debt. With this conversion, creditors will now own about 82 percent of the company, per The Wall Street Journal.
The company also said it has secured $400 million in debtor-in-possession financing to exit debt structures with existing lenders such as Anchorage Capital Group and GSO Capital Partners.
Between these initiatives, the company believes it can reopen many stores that have been temporarily shuttered amid the COVID-19 outbreak. As of May 1, J.Crew Group Inc. operated 181 J.Crew retail stores, 140 Madewell stores and 170 factory stores.
“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,” says Jan Singer, CEO of J.Crew Group.
“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,” adds Singer, who previously served as CEO of apparel retailers Victoria’s Secret and Spanx.
According to recent SEC filings, J.Crew Group Inc.’s total revenues increased by 2 percent to $747 million between the fourth quarters of 2018 and 2019, with the Madewell brand accounting for most of the revenue growth. However, the company still posted a net loss of $78.8 million for the fiscal year ending Feb. 1, 2020. Bloomberg also reported in March that the company had nixed plans to take the Madewell brand public, a move that would have raised capital to pay down existing debt.
“Like many retailers, J.Crew had been facing increasing pressure over the last 10 years as it has continued to accrue debt despite seeing success in opening new locations and driving growth for Madewell,” says Kelly Lynch, retail solutions manager at ActiveViam, a data analytics firm the retail sector.
“However, COVID-19 has significantly exacerbated J.Crew’s underlying issues, which has unfortunately made it the first bankruptcy casualty of the pandemic crisis within the legacy retail space.”
— Taylor Williams\