Clothing maker J. Crew Group Inc. has filed for bankruptcy due to overwhelming debt.
The retail chain had obligations of almost $1.7 billion U.S. as of February 1 due to a previous leveraged buyout. The bankruptcy petition was submitted to the U.S. Eastern District of Virginia.
J. Crew agreed with a majority of creditors to convert $1.65 billion U.S. of debt into equity and secured $400 million U.S. of new money from funds including Anchorage Capital Group, GSO Capital Partners and Davidson Kempner Capital Management, the company said in a written statement.
A Chapter 11 bankruptcy would allow J. Crew to stay in business, cut its borrowings and close weak stores to minimize costs. Normally that would include keeping the doors open for its J. Crew and Madewell retail outlets, but sales at those stores vanished when the coronavirus forced shoppers to stay home and nonessential businesses to close.
Even before the virus spread, the company was struggling financially because shoppers were defecting to online merchants and consumer tastes were changing. J. Crew had been trying to rebound in recent years from some fashion misses and complaints of poor-quality clothing.
J. Crew was relying on an initial public offering of Madewell to raise capital and ease its debt load, a legacy of the 2011 leveraged buyout by current owners TPG Capital LP and Leonard Green & Partners LP. The recent turmoil in financial markets put an end to that option. The company had operated 182 J. Crew-branded stores, 140 Madewell stores and 170 factory stores as of March 2, according to the bankruptcy filing.
