NEW YORK — Standard & Poor’s Rating Services on Monday lowered its credit ratings on J. Crew and placed the company on CreditWatch with negative implications.
The corporate credit rating moved to "CC" from "B-minus" and the rating on the firm’s subordinated notes to "CC" from "CCC."
J. Crew did not comment on the downgrade.
The rating actions follow an April 4 filing with the Securities and Exchange Commission in which J. Crew commenced an offer to exchange its outstanding 13.125 percent senior discount debentures due 2008 for 16 percent senior discount contingent principal notes from a newly formed subsidiary, also due 2008.
Diane Shand, an analyst with S&P, said the downgrade does not reflect J. Crew’s operations, but its debt restructuring. "J. Crew is swapping new debt for old debt and the holders of the old debt will be at a disadvantage," she said, adding that the firm’s rating will be reevaluated, based on a new capital structure, once the offering is completed.
Also in the filing, J. Crew Intermediate, the newly formed wholly owned subsidiary, solicited consents to proposed amendments to the existing debentures indenture which would eliminate most preexisting restrictive covenants.
Holders of a majority of the principal amount of the outstanding existing debentures have agreed to tender all of their existing debentures in the exchange offer. Such tender of existing debentures would satisfy the minimum tender requirement.
S&P said it believes the offer is coercive, therefore, it is tantamount to a default. Upon completion of the tender offer, the corporate credit rating on J. Crew will be lowered to "SD" (selective default) from "CC" and the rating on the 13.125 percent senior discount debentures will be lowered to "D" from "CC." At the same time, S&P will affirm its "CC" rating on the 10.375percent senior subordinated notes.
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