Store logo signOpening of J Crew Store in Regent Street, London, Britain - 08 Nov 2013

J. Crew is getting closer to a more workable financial position.

The retailer said early results of a recently launched tender offer to relax its debt load through an exchange of $566.5 million of payment-in-kind notes due May 2019 have seen 93.6 percent of old notes already exchanged, representing at least $530.5 million of notes in total.

The still-outstanding notes include 6 percent allowed to be withheld from the exchange offer under the restructuring support agreement J. Crew struck with the PIK note holders, so should those be tendered, J. Crew will have reached 95 percent minimum tender condition.

Nevertheless, J. Crew has extended the tender deadline for the exchange to July 10. While an additional extension is possible, it’s likely that the minimum will be met by the new deadline, if not before, and the exchange will be successful.    

Under the exchange offer, note holders agreed to a 2021 maturity date for 13 percent of J. Crew’s senior secured notes worth up to $250 million, while gaining 7 percent of preferred stock and 15 percent of its common stock.

But all of J. Crew’s backers did not sign off on the consent deal reached with a majority of its term loan lenders. The deal not only allowed the exchange offer to take place, but put an end to litigation in New York over J. Crew’s move of valuable intellectual property into a new subsidiary to secure the new notes.

Eaton Vance Management and Highland Capital Management, two investors in J. Crew’s $1.5 billion term loan, on Thursday sued the retailer, arguing the IP move clearly violated the parameters of the term loan and put it in default.

The investors also argued that J. Crew created the IP subsidiary for the “improper purpose” of securing bonds with a longer maturity date and with the intention of putting their losses “onto the backs of their secured lenders.”

J. Crew said at the time it sees the lawsuit as “wholly without merit.”

While Eaton and Highland are asking the court to deem J. Crew in default and the IP transfer invalid, the retailer’s move is the only way it has to make a clearer path for its new chief executive officer James Brett, who takes over next month from longtime leader Millard “Mickey” Drexler.

J. Crew has plans to close at least 20 stores after cutting 150 workers and foregoing 100 open positions, but with the flexibility from the exchange offer, Brett would be able to ostensibly make changes to the company without a significant debt maturity looming.

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