J.Crew's lenders consent to amend loan terms, buying the apparel retailer more time
J.Crew said Wednesday that a term loan amendment, initially proposed in mid-June, has been approved by the retailer's lenders, essentially buying the struggling apparel retailer more time.
Lenders who hold about 88 percent of the outstanding principle amount of loans under consideration within this agreement have consented, J.Crew said.
"[T]he Company views these transactions as strategically important to its overall effort in positioning the company for long-term success," the retailer said in a statement Wednesday afternoon.
"Addressing the nearest-term maturity removes an overhang in a challenging market environment and provides the company a clear and more confident path to execute its business plan."
This particular term loan agreement was announced by J.Crew earlier in June in connection with an offer to exchange part or all of the company's outstanding $566.5 million of notes, due in 2019, which were issued by Chinos Intermediate Holdings, an indirect parent to J.Crew.
If J.Crew's lenders hadn't consented, this could have sped up the retailer's path to a potential bankruptcy — something many people who follow the company have been watching.
J.Crew became burdened by heavy debt load of about $2 billion, which escalated in the wake of a leveraged buyout in 2011 by TPG Capital and Leonard Green & Partners.
Meanwhile, part of its restructuring efforts have included job cuts. J.Crew announced 250 layoffs in late April, which is expected to generate about $30 million of annualized pre-tax savings for the retailer.
J.Crew was included on Fitch Rating's so-called watch list for companies with "loans of concern." Other names with this higher risk of default include Nine West, Claire's Stores, Sears Holdings (NASDAQ: SHLD) and Vince, according to Fitch.
Thanks to high debts, J.Crew's business is a financially broken one, GlobalData Retail Managing Director Neil Saunders said in a recent note to clients.
Recently, J.Crew reported its eleventh consecutive quarter of comparable sales declines.
"The company is in a parlous state," Saunders wrote.
"In this context, recent management changes appear to be little more than rearranging deck chairs on the Titanic. There is always an argument for change, but change by itself is neither a strategy nor a solution — it needs to be accompanied by a blueprint for reinventing the business."
At a time when many of its peers in the apparel space are struggling, J.Crew has been trying to reinvent its namesake brand and convince shoppers to pay up for big-ticket items in its stores.
Issues like poor value perception still linger around the brand, though, GlobalData Retail's Saunders said.
The company was hit with more trouble when, in April, its longtime design chief, Jenna Lyons, announced plans to leave this December after her contract expires. Lyons has been with J.Crew for 26 years and took over as president and creative director in 2012.
Then, Mickey Drexler confirmed he would be stepping down from his role as chief executive of the clothing brand. The 25-year retail veteran is known for his turnaround of Gap (NYSE: GPS) in the 1990s, and he began his career at J.Crew in 2003.
Drexler will be succeeded by West Elm CEO Jim Brett.
A recent Moody's research note said J.Crew is looking to lower its leverage by pushing out its nearest debt maturity from 2019 to 2021. This step could provide the retailer with the breathing room it needs to reinvigorate its brand, the credit ratings agency said.
A representative from J.Crew did not immediately respond to a request for comment on this story.
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