On Thursday, a Virginia bankruptcy court approved the retailer’s disclosure statement, essentially one of the prerequisite steps before eventually having a Chapter 11 plan OK’d.
The disclosure statement’s approval was expected, as the standard for doing so is a fairly straightforward question — whether the statement provides reasonable information for a hypothetical investor to make an informed decision. J. Crew Inc.’s contemplated Chapter 11 plan envisions converting $1.6 billion of secured debt to equity, and would include $400 million in “new money commitment backstopped by their plan sponsors,” according to the retailer’s court filings.
At a hearing on Thursday, J. Crew’s attorney Ray C. Schrock of Weil Gotshal & Manges LLP told the court that the company is on track to meet the milestones in its transaction support agreement, including confirmation of a plan in September, and debtor-in-possession financing agreement. The company will continue negotiating with the creditors committee to reach an agreement on the plan before the confirmation hearing, Schrock said.
A representative for J. Crew declined to comment beyond Schrock’s remarks at the hearing. Attorneys for the creditors committee and ad hoc lenders couldn’t be reached for comment Thursday.
Restructuring in bankruptcy can be a difficult proposition for retailers, and particularly so in the context of the coronavirus pandemic that continues to create uncertainty about the timing of store openings and when shoppers will actually return.
The success of the endeavor depends on the retailer’s general performance and the extent to which its lenders support its plan. J. Crew is generally seen as faring well on both fronts, thanks to the projected value of its Madewell brand and its performance so far, and the support of its lenders.
The retailer’s attorneys have previously told the court that it has the support of lenders of roughly 96 percent in amount of the term loan, as well as a number of other lender groups.
Last month, U.S. Bankruptcy Judge Keith Phillips approved the retailer’s request to defer paying rent through July 6, roughly 60 days from when the company filed for Chapter 11 protection in early May. Through its proceedings, J. Crew has highlighted the stakes of the process, particularly through the shutdowns related to COVID-19 that led the company to furlough some 11,000 employees.
“We have a chance to save a retailer, your honor, 11,000 jobs, an ability to really have a great turnaround story for an iconic American brand,” Schrock told the court at a hearing in May. “There has to be sacrifice on the part of all parties.”
Since then, the company has reopened 315 store locations, roughly 64 percent of its total of nearly 500 stores, brought back the “majority of furloughed store associates” and added some 400 positions to a distribution center in Virginia, the company said in a statement earlier this month.
J. Crew has said it is undertaking a “phased” approach to reopening stores during the ongoing coronavirus pandemic, only reopening wherever local laws allow, and where the company can adopt “enhanced health and safety protocols,” including social distancing and store cleanings.
“The company is taking a careful and deliberate approach to its store reopenings to ensure full implementation of appropriate safety protocols in line with CDC guidelines and government regulations to protect its customers, associates and local communities,” the retailer said earlier this month.