In Finance, ‘J. Crew’ Is a Verb. It Means to Stick It to a Lender
But the preppy retailer’s 2016 gambit may not have been so bad for creditors after all.
J. Crew Group Inc. and its private-equity owners pulled off a neat move in 2016. The deeply indebted preppy retailer needed to raise money but didn’t have any fresh assets to pledge as collateral for a loan. Whatever of value it owned was already pledged to existing lenders.
So J. Crew opened a trap door. It put its brand name and some other intellectual property into a new entity in the Cayman Islands that was beyond the legal reach of its existing lenders. Then it used that new entity to borrow $300 million from Blackstone Group LP. The existing lenders, who saw valuable collateral disappear before their eyes, cried foul, but J. Crew argued that its move was perfectly legal under terms of the loan documents. (The issue was never litigated.) Since then, lenders to other companies have worried about being “J. Crewed”—i.e., victimized by a deal that siphons away collateral backing their loans. It rhymes with another word.