J. CREW SALE IS NEARER AFTER BONDS ARE PLACED

Byline: Sidney Rutberg

NEW YORK — Bonds needed to finance the $540 million purchase of J. Crew Group by the Texas Pacific Group were sold Tuesday, after the price on the bond deal was sweetened.
Term sheets on the deal were obtained by WWD on Wednesday. The bonds were sold through a private placement underwritten by Donaldson, Lufkin & Jenrette and Chase Manhattan Bank, in a major step toward completing the acquisition.
Under the deal, Texas Pacific, a $2.5 billion private investment company based in San Francisco and Fort Worth, Tex., will acquire 88 percent of J. Crew. Emily Woods, chief designer at J. Crew and daughter of the founder Arthur Cinader Sr., will hold 12 percent of the equity.
Last year, J. Crew’s revenues were $800 million, with about half the revenues coming from the J. Crew brand catalog.
The issues sold were $150 million in 10-year senior subordinated notes maturing in 2007 and $142 million face amount of discount notes (zeros) maturing in 2008. The senior subordinated notes will pay interest at 10 3/8 percent, up from the original yield of 10 percent. The zeros will yield 13 1/4, up from the original rate of 12 7/8. The zeros were sold for 53 cents on the dollar.
The original bond sale had been canceled on Oct. 10 following reports that third-quarter results at J. Crew were below expectations.
In addition to increasing the interest rate on the bonds in order to make them marketable, total debt of the surviving company was reduced by $49 million.
This was accomplished by lowering the purchase price by $20 million to $540 million, the injection of $20 million in new capital and selling an additional $9 million in accounts receivable.
As a result of the changes in the terms and improvement in the credit standing of the surviving company, Moody’s Investors Service on Tuesday upgraded the rating of the senior subordinated notes to B3 from Caa1, as reported.
The notes are being issued by J. Crew Corp., the operating company. The zeros, which are being issued by the holding company, J. Crew Group, were not upgraded from the Caa2 rating set by Moody’s. The agency said that holders of the discount notes “do not significantly benefit from the changes to the capital structure.”

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