Photographer: Brent Lewin/Bloomberg

J. Crew Lenders File New Lawsuit Over Trademark Transfer

Updated on
  • Holdouts to loan amendment say unanimous consent is needed
  • Eaton Vance and Highland funds seek to block restructuring

J. Crew Group Inc.’s debt restructuring can’t go forward because not all lenders agreed to it, and it seals the deal on an improper shift of trademark assets to benefit the retailers’ private equity owners, two holdouts said.

Funds affiliated with Eaton Vance Corp. and Highland Capital Management sued J.Crew and the agent to its $1.57 billion term loan in New York State Supreme Court Thursday. They say the agent, Wilmington Savings Fund Society FSB, needed unanimous consent of lenders for the deal it inked earlier this month; consenting to the restructuring deal and waiving potential lawsuits against J. Crew over its controversial transfer of its trademark assets last year.

On Wednesday, J. Crew said that 88 percent of lenders consented to the deal.

J. Crew and its affiliates, “entities now in severe financial distress -- intend to wrongfully impose their losses onto the backs of their secured lenders,” the funds said, alleging that Wilmington let them do so in violation of the loan agreement that governs their debt.

Furthermore, the funds say in the suit, the restructuring was the last step of a scheme to transfer value away from secured lenders for the benefit of its ultimate shareholders, TPG Capital LP and Leonard Green & Partners LP, which bought J. Crew in 2011 for $3.1 billion.

Margot Fooshee, spokeswoman for the J. Crew, didn’t immediate return a message for comment. TPG and Leonard Green didn’t immediately respond to calls seeking comment.

Clawed Back

The initial transfer of trademark assets to certain J. Crew affiliates was a so-called fraudulent transfer, made with the intent of keeping the assets away from secured lenders, and can therefore be clawed back, the funds said.

Their suit describes how a layer of debt that was set to mature earlier than the secured debt -- $500 million in payment-in-kind notes issued by the company in 2013 and due in 2019, before the term loan matured in 2021 -- was created to fund a dividend to TPG and Leonard Green, and how the transfer of trademark assets was used to give that collateral to the PIK holders as part of an exchange offer.

Actions taken by J. Crew around the trademark transfers are an event of default that should allow secured lenders to exercise their rights, the funds said in their lawsuit. Instead, Wilmington and the majority of lenders capitulated to a deal that gives them less value than they’re entitled to, the funds said.

Trademark Assets

The restructuring deal essentially blessed the release of secured lenders’ rights to trademark assets, dismissed a lawsuit against J. Crew, and has them agree to pay a $59 million license fee for certain trademarks in exchange for cancellation of $150 million of their debt and the issuance of $127 million in new debt.

The offer, which gave lenders four days to decide whether to agree to it, puts pressure on them because, if they didn’t take part, they would not benefit from J. Crew’s repurchase of $150 million of debt at par, with interest, at a time when they were trading at less than 70 cents on the dollar, the funds said.

Eaton Vance funds hold around $100 million of the term loans, and Highland funds about $61 million, according to the filing.

The case is Eaton Vance, et al. v. Wilmington Savings Fund Society FSB, et al. 654397/2017, New York State Supreme Court, New York County (Manhattan).

— With assistance by Chris Dolmetsch

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