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>> J Crew isn't just taking the traditional approach as it tries to avoid going where other retailers have gone, into the abyss of bankruptcy. Sure, sprucing up an aging clothing line or jazzing up retail locations are on the agenda, but so is a bit of financial engineering. Reuters reporter, Jessica DiNapoli.
>> J Crew is taking its brand, its very famous, well-known brand. They wanna move it into another related company. And use the value of its brand to issue new debt and buy back some of the old debt.>> Reuters learning exclusively that one investor, a unit of private equity firm Blackstone Group is so in love with the plan that it's buying up J Crew debt in order to muscle out any opposition.
Privately held J Crew declined to comment but sources say the money raised by selling the new debt backed solely by the J Crew name, will be used to get rid of half of a billion dollars of old debt due in 2019, and what would be at a steal of a price.
That would push off any threat of bankruptcy until 2021, giving the struggling retailer more time to find a way to grow sales.>> They kind of departed from their classic tailored preppy look. By offering more trendy, funky pieces. So, they're trying to, it seems like potentially get back to basics.
They're open to doing the financial engineering because they want to get rid of this giant debt overhang. It's 2 billion dollars of debt. And with sales going down, there are issues about their ability to repay the debt which could cause bankruptcy, it could cause more issues with lenders.
>> But most of J.Crew's investors other than Blackstone are not in favor of the swap. By transferring the J.Crew name and other intellectual property to the subsidiary the retailer will now have to pay a licensing fee to use its own name In addition, interest rates on the new loans will be higher.
If sales don't increase enough to cover those higher costs, then J. Crew could still be forced into the bankruptcy it tried to make disappear. And that's a risk those who oppose the restructuring gamble are not willing to take