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A street remains mostly deserted near a J Crew store during the coronavirus pandemic on May 3, 2020 in New York City.
Rob Kim—Getty Images

(Bloomberg) — J. Crew Group Inc. filed for bankruptcy, unable to revive flagging sales of its preppy clothing line amid the coronavirus pandemic and crushed by debt rooted in a long-ago leveraged buyout.

The retail chain reached a deal with a majority of its lenders to convert $1.65 billion of debt into equity, J. Crew said in a statement Monday.

Lenders led by Anchorage Capital Group, Blackstone Group Inc.’s GSO Capital Partners and Davidson Kempner Capital Management are providing $400 million of financing that will allow the company to maintain operations during the Chapter 11 restructuring, according to the statement.

The bankruptcy filing in U.S. Bankruptcy Court in Richmond, Virginia, allows J. Crew to stay in business while cutting its borrowings. Normally that would include keeping the doors open for its J. Crew and Madewell stores, but sales at those outlets vanished when the coronavirus forced shoppers to stay home and nonessential businesses to shut.

Even before the virus spread, the company was struggling because shoppers were defecting to online merchants and consumer tastes were changing. J. Crew had been trying to rebound from some fashion misses and complaints of poor-quality clothing.

The company managed to sidestep default once before in 2017, with a financial overhaul that included shuffling assets in a way that moved fast-growing Madewell out of reach of creditors.

The change did little to reverse the company’s fortunes, but it irked creditors and turned J. Crew’s name into a synonym on Wall Street for lopsided debt deals that leave lenders with weaker claims on company assets.

J. Crew was relying on an initial public offering of Madewell to raise capital and ease its heavy debt load, a legacy of the 2011 leveraged buyout by current owners TPG Capital LP and Leonard Green & Partners LP. The turmoil in financial markets put an end to that option.

Madewell will remain part of J. Crew as part of the transaction support agreement the company reached with its lenders, according to the statement. About 71% of the company’s term loan lenders and 78% of its so-called IPCo notes agreed to the deal, the company said.

The company operated 182 J. Crew-branded stores, 140 Madewell stores and 170 factory stores as of March 2, according to recent filings.

The case is Chinos Holdings Inc., 20-32181, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).

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