J. Crew Group Inc. averted a bankruptcy filing this summer when it convinced bondholders to do a debt swap that tapped the value of its brand name, the Wall Street Journal reported today. A majority of the struggling retailer’s bondholders agreed to the swap, but the deal angered a few of its lenders, who saw the valuable brand name stripped away from the collateral backing their loans. They sued to block the deal, but so far their efforts have faltered. J. Crew, for its part, says that it is simply taking advantage of covenants in its debt documents that allow the company to do such a deal. Distressed-debt exchanges aren’t unusual for companies that are struggling with heavy debt loads, but the J. Crew deal has raised concern among high-yield investors because it effectively pushes J.Crew’s junior bondholders to the front of the line of creditors, ahead of term-loan holders, who were in a superior position before the debt exchange.
