As much as J. Crew Group Inc. wants to clear the table before James Brett takes the reins as chief executive officer next month, a new legal tussle over its financial rework looms.
The company just this week said lenders holding 88 percent of the principal of its term loan had OK’d an amendment to the agreement.
But not everyone was satisfied and on Thursday two investors in the term loan — Eaton Vance Management and Highland Capital Management — sued J. Crew in New York Supreme Court.
That amendment to the term loan is crucial because it would give the company a path to refinance $566.6 million in PIK bonds set to come due in 2019, pushing back any major debt maturity until 2021 for the struggling company.
The controversy started late last year when J. Crew moved intellectual property tied to its brand into a separate subsidiary.
In their suit, Eaton Vance and Highland Capital said: “This maneuver was not only in violation of the lender’s term loan agreement, it also had an improper purpose; the defendants’ intellectual property, once freed [improperly] of the term lenders’ liens, would be offered up as collateral for junior, unsecured bondholders, willing to exchange their bonds for to be issued secured bonds of lesser principle amount and longer maturities. In this way, the J. Crew defendants — entities now in severe financial distress — intend to wrongfully impose their losses onto the backs of their secured lenders.”
The suit argues that J. Crew technically defaulted on its term loan in April and asks the court to deem the intellectual property transfer invalid.
A J. Crew spokeswoman said, “The company strongly believes that the lawsuit filed today is wholly without merit.”
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