Lenders group socks J.Crew with lawsuit
Just when J.Crew thought it had fixed its debt mess, a group of creditors is raising a fresh ruckus in court over the retailer’s unusual deal to fix its balance sheet.
Lenders to the sales-challenged clothing chain on Thursday asked a judge to block the retailer from carrying out an unusual and controversial move to shift its intellectual property to junior bondholders.
Hedge fund Eaton Vance led a group that asked New York State Supreme Court Judge Shirley Kornreich to issue a temporary restraining order. They allege J.Crew reported numbers for the period ended July 30, 2016 that were not based on “factually supportable” assumptions and therefore defaulted on its loan agreement, court papers said.
Judge Kornreich will hold a formal hearing onthe matter next Wednesday, sources said.
J.Crew — whose longtime boss, the mass merchant Mickey Drexler, abruptly stepped downas CEO earlier this month — has taken an aggressive move to address its debt.
The private equity-owned-retailer believes last week it won enough creditor support to exchange junior bonds coming due in May 2019 for a lower amount of debt due much later. The new loan package will be backed by J.Crew’s intellectual property.
The suing senior lenders, however, believe the company does not have the right to separate the intellectual property and pledge it to junior lenders without unanimous support.
Marc Kasowitz’s law firm represents J.Crew. Kasowitz is representing President Trump and his partners David Rosner and Josh Greenblatt are representing J. Crew, a source said.
The junior bonds, as are sult of the pending transfer, have seen their value rise over several months from 35 cents on the dollar to 67 cents. They are trading at a higher price than the senior loans, recently at 60 cents — a highly unusual scenario in corporate debt.