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March 8, 2019

Asset-stripping transactions – getting “J Crewd’d”

MARKABLES was recently referenced in a case negotiated before the Supreme Court of New York. In an attempt to restructure its debt and to avoid bankruptcy, fashion retailer J. Crew Group, Inc. transferred parts of its trademark rights to a Cayman based, unrestricted subsidiary, thereby having bondholders do a debt swap tapping into its brand name value and lowering J. Crew’s debt. The transfer of the trademark impaired the secured status of the term lenders, some of which opposed the transfer.

One aspect of the dispute was the value of the transferred trademarks. J. Crew effected the transfer based on a trademark value of US$ 347 million, being slightly below a threshold fixed in the loan agreement. Expert for opposing lenders concluded on a trademark value between US$ 971 million and 1.1 billion, based on data retrieved from MARKABLES – among others. Click here to read the expert’s affidavit.

Meanwhile, J Crew successfully consummated the transaction after the court decided in their favor. The case attracted some attention in the loan market as the “J. Crew fiasco”. Lenders now attempt to avoid getting “J Crew’d” by insisting on tighter language around permitted investment by borrowers. On the other side, the market is speculating about which other retailers may be able to orchestrate similar asset-stripping transactions based on their own loosely structured credit agreements.

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