David Bonderman’s TPG Capital cut the value of its stake in struggling clothing retailer J. Crew Group Inc. by 84 percent at the end of 2015.
The private equity firm, which led a 2011 leveraged buyout of the company, told investors that its $478.6 million equity holding in J. Crew was lowered to $76 million, according to documents obtained by Bloomberg.
The retailer has been weighed down by $2.1 billion of debt, most of which was loaded on as TPG and Leonard Green & Partners took over. J. Crew bonds were the worst-performing in the U.S. retail sector last year.
“The market, currently trading the company’s debt at a big discount, is saying that it’s unlikely that the equity has any value,” said David Tawil, co-founder of New York-based Maglan Capital LP.
J. Crew hasn’t been a total wipeout for Fort Worth, Texas-based TPG. The firm had paid itself at least $357 million, including dividends and fees, as of June 2014, the documents show. TPG and its affiliates invested about $800 million, or two-thirds of the equity for the 2011 buyout, according to a company filing. Leonard Green and its co-investors put in about $300 million.
Margot Fooshee, a spokeswoman for J. Crew, didn’t immediately respond to requests for comment. Erika Spitzer at Leonard Green and Luke Barrett at TPG declined to comment.
The 2011 buyout was the second time TPG invested in J. Crew. The private equity firm put $133 million into the retailer in 1997 and recruited Mickey Drexler to run the company in 2003. By the time it sold the last of those shares in early 2009, it had made seven times its money, documents sent to investors show.
When J. Crew saw a sharp downturn in its performance in 2010, TPG took the contrarian view that the poor results were temporary, the firm told investors. The following year, it led a buyout of the retailer with Drexler.
This time around, it’s been a struggle for Drexler, who successfully turned around Gap Inc. in the 1990s. J. Crew has promoted clothing styles that haven’t sold, and its fits and prices haven’t appealed to shoppers. Compounding those mistakes, foot traffic at malls has been steadily declining, which has forced it to increase discounts to compete and clear out excess inventory.