The coronavirus pandemic has hit several businesses and industries hard, even as others appear to thrive. The retail space has been one of the former, as lockdowns and more continue to restrict people from shopping as much as they would like.
As for the businesses, however, mounting costs have put a severe strain on their operations. The dominoes have started to fall, as retail giant J Crew recently filed for Chapter 11 bankruptcy protection.
Bleak Outlooks as COVID-19 Runs Riot
Earlier this week, the New York retail company confirmed that it had filed for prearranged Chapter 11 bankruptcy proceedings in federal bankruptcy court in the Eastern District of Virginia. The firm also announced that it would enter into a debt-for-equity swap with its lenders to the tune of $1.65 billion.
However, the firm has been able to secure a $400 million financing facility from some of its lenders, which reportedly include Anchorage Capital Group, L.L.C., GSO Capital Partners, and Davidson Kempner Capital Management LP.
Jan Singer, the company’s chief executive, 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.”
Of course, the fact that J Crew is filing for bankruptcy doesn’t necessarily mean that it would go out of business. As it strongly expressed in the statement, it expects to come out of the proceedings stronger and as a more profitable entity.
At the same time, the firm is still keeping hold of one of its most prized assets – Madewell, a fast-growing denim brand that has started on the process of filing for an Initial Public Offering (IPO).
Still, the company doesn’t expect this to be an easy row to hoe. As it explains, closing down its stores during the coronavirus pandemic could cost it up to $900 million.
J Crew started as a catalog-only retailer in 1983 and quickly grew. In 2001, the firm got acquired by TPG Capital and Leonard Green & Partners, two equity firms, in a $3 billion deal. However, the firm’s growth has also come with some significant downsides.
Reports show that the firm had about $50 million in long-term debt as of 2010. In the last decade, that number has ballooned to between $1.7 billion and $2 billion. In its bankruptcy filing, the firm estimated assets and liabilities to be between $1 billion and $10 billion.
Retail Companies on Death Watch
Still, the fact that the firm is seeking bankruptcy protection isn’t much of a surprise. Retail chains have been one of the most severely-hit since the coronavirus forced people to stay home, and several other firms in the space are now under intense scrutiny.
Last month, CNN Business explained that four retail giants – Sears, J Crew, JC Penney, and Neiman Marcus – were all teetering on the brink.
Sears already filed for bankruptcy in 2018, while JC Penney has as much as $3.7 billion in debt. Bloomberg also reported last month that Neiman Marcus is considering filing for bankruptcy itself as the firm is facing a $4.3 billion debt profile.
Now that J Crew has taken the plunge, it’s looking like a question of when – not if – the others will follow.