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J. Crew Exits Bankruptcy Under New Ownership

J.Crew is out of bankruptcy and under new ownership.

On Thursday, J.Crew Group officially concluded its tour of Chapter 11 proceedings and has Anchorage Capital Group as its new majority owner.

“We are immensely pleased to have completed this process swiftly, and we thank our customers, associates, vendors, and new owners for the dedication and support they have given us these past several months,” said J.Crew CEO Jan Singer.

“Looking forward, our strategy is focused on three core pillars: delivering a focused selection of iconic, timeless products; elevating the brand experience to deepen our relationship with customers; and prioritizing frictionless shopping,” Singer added. “As a reinvigorated company, we are committed to serving the changing life and style of today’s multifaceted consumer and to delivering long term, sustainable results.”

Following its exit from bankruptcy, J. Crew has a new capitalization structure that includes a $400 million term loan due 2027 provided by Anchorage, as well as GSO Capital Partners LP and Davidson Kempner Capital Management, among others. The specialty retailer also has access to a new $400 million asset-based loan credit facility due 2025.

In addition to operating its core J. Crew nameplate, the company owns the Madewell brand, which it hoped to spin off. The company pulled the plug on a planned initial public offering in March as the economic landscape quickly took a nosedive. The financial restructuring converted over $1.6 billion of secured debt into equity in the reorganized company.

“We are energized by the opportunity ahead for the Madewell brand and ready to continue our momentum as we enter into a new phase of growth,” said Madewell CEO Libby Wadle. “We will remain focused on maintaining our place as a leader in denim and innovating to create a differentiated shopping experience. We are also continuing to grow our offering of everyday essentials and are well positioned to lead the casualization trend offering our customers clothes they want to wear now.”

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Anchorage CEO Kevin Ulrich noted J.Crew and Madewell’s skill in merging “timeless classics with modern, fresh designs will never go out of style.” According to Ulrich, both brands have opportunities for growth and expansion, and “their existing robust direct-to-consumer and e-commerce platforms will position the company to succeed in today’s evolving retail landscape.”

The American apparel retailer became the first national retailer to file for Chapter 11 bankruptcy court protection in the wake of the pandemic under its former parent company Chinos Holdings. Shortly after it filed, several other marquee fashion retailers also collapsed into bankruptcy. Neiman Marcus last week received bankruptcy court approval on its plan of reorganization, and is expected to exit bankruptcy later this month. J. C. Penney on Wednesday inked an agreement with Simon Property Group and Brookfield Property Partners, its two largest landlords, to keep its operating entity as a going-forward concern, but the $1.75 billion transaction still requires bankruptcy court approval and is subject to a court auction that could see a rival coming in to bid for the operating unit.

Even with the exit from bankruptcy and Anchorage’s confidence in the future of both the J. Crew and Madewell brands, the two businesses will face continued challenges. The coronavirus pandemic is still hanging around and no one knows what a possible second wave may entail, especially with the holiday season approaching. The two brands are also primarily apparel-focused, a category that’s not exactly top of mind for most consumers these days beyond anything that speaks to casual comfort. And while consumers are buying comfortable loungewear items for home at the moment, there’s no guarantee in how long that trend may continue or whether a second wave may require lockdowns again, which would likely shift spending back to essentials.

But there could be a bigger problem ahead, at least for the J. Crew brand.

Last year, there was every indication that the J. Crew brand was losing some luster, and getting outshined by younger sibling Madewell. It was Madewell that provided a bit of cushioning to overall results that helped offset losses at the core brand. And it was the strength of Madewell that led to a decision that a possible IPO could help J. Crew’s capital structure last September, long before the arrival of Covid-19. The challenge ahead will be in making sure the merchandising assortment and any product innovation will resonate with a consumer base that could very well be further impacted by Covid-19, an ongoing global recession, and potentially more furloughs and job losses in the future.