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J.Crew debt's pressure to reach all-times peak in 2017

By Angela Gonzalez-Rodriguez

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Business

J. Crew Group Inc. approaches 2017 chased by mounting pressure to turn around a two-year sales slump to overcome an ever-growing debt. As a good chunk of the company’s two billion dollars debt becomes current in 2018, the company is trying everything in this power to revive its formerly buoyant business.

“I don’t think they know how to fix J. Crew,” said Carla Casella, an analyst at JPMorgan Chase & Co. quoted by the ‘Wall Street Journal’. “They were just living on the past strength of their brand,” she further adds.

J. Crew Group Inc incurred almost two billion dollars of debt as it sold itself for three billion dollars in 2011 to private equity firms TPG Capital, Leonard Green and CEO Mickey Drexler. At the end of 2015, TPG Capital cut the value of its stake by 84 percent, which nothing but made the financial problems at the preppy apparel company more acute.

To save the company from default, the retailer is focusing on its preppy heritage, expanding its discount business and fuelling the growth of its small but successful Madewell brand geared toward millennials. For some analysts, it may already be too late.

Investors don’t expect J.Crew to be capable of paying the debt that matures in 2018

Furthermore, investors aren't expecting to the company’s debt that comes due in 2018 to be fully paid back, at least based on bonds that are trading at half the price they were last year, highlights Bloomberg quoting market sources close to the matter.

Over the past two years, the retailer has lost customers who complained of high prices on low-quality and ill-fitting clothes, and its same-store sales have fallen in 10 of the past 11 quarters. Many would argue that J. Crew has fallen sharply out of favour since first lady Michelle Obama and her daughters wore the brand at the 2013 inauguration.

In the past months, the company’s management has explored different options to reduce its piling debt. As part of its preparations for negotiating with its creditors, J. Crew has explored the possibility of moving the rights to its iconic brand into a separate subsidiary. This move would give J. Crew the opportunity to raise new financing to buy back its loans and bonds at a discount, or offering creditors the chance to swap into the new debt holdings.

The company’s most immediate debt concern is centred on 543 million dollars of pay-in-kind notes due in 2019 that become current in 2018, highlights Bloomberg Intelligence Unit. The securities traded at less than 42 cents on the dollar on Dec. 15 to yield 51 percent, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

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