The Madewell store at 115 Fifth Avenue.Madewell Fifth Avenue, New York

Moody’s believes Madewell is valued too high by its parent J. Crew Group.

Moody’s characterized the brand as “J. Crew’s crown jewel representing the vast majority of the struggling parent’s earnings” with an enterprise value in the range of $1.2 billion to $1.9 billion.

That’s a far cry from the $1.9 billion to $2.9 billion valuation of Madewell that J. Crew presented to lenders. J. Crew Group and lenders must agree on a debt-restructuring plan for the initial public offering to happen.

Moody’s report on the planned IPO of Madewell follows a WWD story on Sept. 17 quoting financial sources as characterizing J. Crew’s Madewell valuation as too high.

Moody’s came up with a more conservative range “because the IPO would be coming at a time when retail valuations are broadly under pressure and vary meaningfully.”

Moody’s also said the valuation could be affected by “the relatively large initial float, continuing control of Madewell by J. Crew’s stakeholders, a transition services agreement with J. Crew, and concerns that transaction proceeds will be used to repay J. Crew debt instead of investing in Madewell.”

Madewell seeks to generate $970 million in proceeds from the IPO, representing 40 percent of its equity. That scenario would value Madewell at $2.45 billion in equity, or 20 times its earnings before interest, taxes, depreciation and appreciation of $113 million last year, which is an extremely high multiple.

The company has also proposed issuing $500 million in new secured debt, bringing Madewell’s total enterprise value to $2.925 billion.

J. Crew Group plans to use proceeds of the IPO to pay down much of the $1.7 billion in debt due 2021.

There’s speculation that J. Crew Group made its IPO proposal to attract a buyer for Madewell, which was founded by the legendary Millard “Mickey” Drexler, the former chairman and chief executive officer of J. Crew Group and former ceo of Gap Inc.

Madewell has been successfully managed by Libby Wadle, president and ceo, who worked with Drexler and is set to continue running the multichannel brand following the Madewell split from the parent J. Crew Group.

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