(CN) — In what is likely just the first domino to fall in a line of retailers whose bottom lines have been hit hard by Covid-19 shutdowns, the owner of J.Crew filed for bankruptcy protection Monday.
J.Crew is the first major retailer to ask for such protections but more retail bankruptcies are expected. According to the U.S. Commerce Department, clothing sales fell by more than 50% in March and most stores and restaurants have seen severe drop-offs in sales due to state lockdowns.
Retail sales figures for April – which are expected to be notably lower – will be released next week. Hundreds of thousands of retail workers are on furlough, receiving benefits but no salaries.
In a world where brick-and-mortar stores were already struggling, Covid-related closures have hit many retailers hard. But J.Crew was in a particularly bad position to deal with the situation from the start, as it was saddled with major debt from a buyout in 2011, when it was acquired by the private-equity firms TPG Capital and Leonard Green & Partners. It has $1.7 billion in long-term debt.
J.Crew said Monday that it is seeking relief from creditors and that it’s gotten financial commitments of $400 million from lenders like Anchorage Capital Group, GSO Capital Partners and Davidson Kempner Capital Management. It also said its lenders, which hold 71% of its term loan and approximately 78% of its so-called IPCo Notes, will turn $1.65 billion of the company’s debt into equity.
"Throughout this process, we will continue to provide our customers with the exceptional merchandise and service they expect from us, and we will continue all day-to-day operations, albeit under these extraordinary Covid-19-related circumstances,” Jan Singer, CEO of the J.Crew Group, said in a statement. “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."
J.Crew’s business plan was to pay off some debt by spinning off its Madewell store divisions into a public company, but the company said Monday that Madewell will stay with J.Crew Group Inc for now.
J. Crew had 193 stores, 172 factory outlets and 132 Madewell locations as of Feb. 1. The company was originally founded in 1947 under the name Popular Merchandise Inc., and was renamed J.Crew in 1983.
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