J. Crew Suspends Madewell Spinoff Needed to Cut Debt Load

(Bloomberg) -- J. Crew Group Inc. is suspending the initial public offering of its Madewell brand after it failed to reach a deal with creditors, according to people with knowledge of the matter.

Negotiators couldn’t agree on terms, and J. Crew is no longer considering taking its most profitable brand public in the near future, said the people, who asked not to be identified discussing a private matter. J. Crew could reverse the decision and offer a revised proposal if market conditions improve, the people said.

A representative for J. Crew declined to comment.

J. Crew was relying on the Madewell deal to raise capital and ease its heavy debt load. The company listed outstanding long-term debt at almost $1.7 billion at the end of the fiscal year that ended Feb. 1. The transaction could shore up J. Crew’s junk-rated balance sheet, which includes some debt that’s quoted as trading for about 87 cents on the dollar.

Last month, the retailer pushed back deadlines for Madewell’s IPO, but said it was still planning to split its operations and take the brand public at a later date. Lenders meanwhile agreed to eliminate a March 2 date for the IPO, extending it until the end of April.

J. Crew held talks with creditors last year about a debt transaction that ended in a stalemate. Negotiations continued in the following weeks, but didn’t result in an agreement that would make Madewell’s IPO possible anytime soon, the people said.

The deal has been hobbled by a general lack of investor conviction for the troubled retail space, and the recent market turmoil tied to the coronavirus added to lender and bondholder reluctance, they add. The breakdown in talks occurred before the virus prompted mass U.S. store closings, the people said.

The company carries a CCC- rating from S&P Global Ratings, which cast doubt in September on the prospect for a J. Crew turnaround. S&P cited competition from fast-fashion chains, e-commerce, big-box discounters and falling mall traffic.

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