More hereOriginally Posted by CNBC
Clothing apparel company J.Crew filed for bankruptcy Monday, marking the first major retail bankruptcy of the coronavirus pandemic.
The New York-based retailer had already been struggling under a heavy debt load and sales challenges, suffering from criticism that it fell out of touch with its once-loyal customers. In the past few years, the brand lost its longtime design chief, Jenna Lyons, and famed retail executive Mickey Drexler, who was CEO.
It was acquired by private equity firms TPG Capital and Leonard Green & Partners for $3 billion in 2011, one of a number of retail acquisitions in that time. Many of those deals, including Payless Shoesource and Toys R Us, have since filed for bankruptcy, as debt limited their ability to manage the retail upheaval that soon followed.
J.Crew had roughly $2.5 billion in annual sales and about $93 million in total liquidity as of February, according to Moody’s. The company said Monday it has reached a deal with stakeholders to convert $1.65 billion of its debt to equity.
It has secured $400 million in financing from existing lenders Anchorage Capital Group, GSO Capital Partners and Davidson Kempner Capital Management to help fund operations through bankruptcy.
J.Crew’s woes have been exacerbated by the pandemic, which has forced stores to shutter, throwing the retail industry into disarray. Retailers that were already struggling, including Neiman Marcus and J.C. Penney, are now under pressure to potentially file for bankruptcy sooner than they hoped.
Neiman Marcus has been in discussions about financing to fund its bankruptcy, while J.C. Penney skipped an interest payment.
Bankruptcy during the pandemic remains an uncharted course, as each state assesses whether and when to reopen stores after ordering all nonessential retail to shutter.
More hereOriginally Posted by CNBC
J.C. Penney is in talks to secure financing for bankruptcy as the coronavirus pandemic has devastated the American retail industry, people familiar with the matter tell CNBC.
The Plano, Texas-based retailer skipped a $12 million interest payment on April 15, starting the clock on a 30-day grace period that could force it to file for bankruptcy as soon as May 15.
If J.C. Penney hits the May 15 deadline, it could opt to make the interest payment it owes, but the retailer skipped another $17 million payment Thursday night. The more money it has in bankruptcy, the more ability it has to execute its plan and survive.
J.C. Penney is negotiating with its first lien lenders, including H2 Capital, a “debtor in possession” loan of around to $300 million to $500 million, some of the people familiar with the matter said. It had originally hoped for as much as $1 billion in DIP, though that would have included existing debt being rolled over.
The company has also spoken to larger banks about bankruptcy financing, but DIP funds have been harder to come by than for other recent large-scale retail bankruptcies. While large banks contributed DIP to retailers like Toys R Us and Sears, they are less willing to extend such financing efforts now, particularly when they are not existing creditors, people familiar with the situation tell CNBC. As retailers from Macy’s to Nordstrom look to draw down their credit lines, banks must prioritize so that they are lending to those they are most confident can survive.
In its favor, J.C. Penney has an iconic brand and real estate throughout the country. It is buffered by $386 million of cash it had on hand as of February, as well as roughly $1.25 billion it drew from a credit line in March.
The size and nature of DIP financing that J.C. Penney is able to secure may set the tone for additional retail bankruptcies that are expected to come even as states begin to reopen their economies. Preppy retailer J. Crew and high-end department store Neiman Marcus filed for bankruptcy this week. Many more, including rural retail chain owner Stage Stores, are expected to follow suit.
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