J. Crew won the first stage of a new legal battle with a minority of lenders unhappy with the brand’s plans to restructure its debt load.
During a hearing, a New York Supreme Court judge rejected a demand by term loan lenders Eaton Vance Management and Highland Capital Management that J. Crew be halted from going through with a debt exchange consented to by a majority of its lenders.
While the rest of Eaton and Highland’s recent complaint is still being considered, including allegations that J. Crew’s decision to move most of its valuable intellectual property out of lender reach in order to secure the debt exchange is in violation of its $1.56 billion term loan agreement, it’s unclear what exactly will come next.
J. Crew on Tuesday filed its opposition to the disgruntled lenders’ injunction request, saying it had already received a denial from the court, but filed supplemental papers in a “last-ditch effort” to get around the court’s order.
The company also said “there is absolutely no justification for the plaintiffs’ conduct” and rejected the lenders’ attempt to couch the injunction in an affidavit “purporting to dispute” the valuation of the IP assets at the heart of the dispute, which has been available for six months.
“There is absolutely no reason whatsoever for the plaintiffs’ egregious delay, other than desperation or bad-faith gamesmanship,” J. Crew said.
Term loan lender agent Wilmington Savings Fund, which consented to dismiss its own litigation against J. Crew over the IP transfer, also pushed the court to reject Eaton and Highland’s attempt to keep it from dismissing the earlier suit and executing a term loan amendment allowing for the debt exchange.
Wilmington said there is simply “no basis under the term loan agreement for such an injunction and the request to enjoin the agent from acknowledging the term loan amendment is not necessary to maintain the status quo.”
Counsel for Eaton and Highland could not be reached for comment.
While Eaton and Highland’s request that the court deem J. Crew in default of its term loan and the IP transfer invalid is still on the table, the retailer’s debt move is the only way it has to clear a path for changes by 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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