Friday, November 27, 2015

J. Crew Went PEU

Bloomberg reported:

J. Crew’s $500 million 7.75 percent senior unsecured bonds maturing May 2019 last traded at 25.5 cents on the dollar on Nov. 24, losing 60 percent in value this year, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities, which were issued in October 2013 at par, were trading above 90 cents on the dollar as recently as April. The precipitous fall marks J. Crew’s bonds as the worst-performing retail debt in the U.S.
Summer 2014 found J. Crew floundering despite having the Obama girls don their clothing for the inauguration in 2013:

Mickey Drexler has amassed more than $350 million from the leveraged buyout of J. Crew Group Inc. even as he struggles to revive sales and restore the apparel chain’s fashion cachet.

Three years after taking the retailer private with private-equity firms TPG Capital and Leonard Green & Partners LP, J. Crew’s chief executive officer is battling slowing sales as shoppers decamp to more affordable, trendier rivals. 
It took a mere four years for J.Crew's staggering debt to become an anchor.  As for the meme that private equity are skilled operators consider these words:

Drexler acknowledged earlier this year that the flagship brand had gotten away from its classic roots, and that quality was wanting in some items while fits were wrong in others. 
Lest the children stay awake at night worrying about J. Crew, parents please tell them.

Drexler invested $11 million of his own money when he was named CEO in 2003. In the 2011 buyout, his stake was worth about $301 million -- he pocketed $202 million of that and rolled the rest into an 8 percent stake, according to company filings. He also got $55 million in dividends as part of the $681.5 million J. Crew has paid the owners since going private.

In all, Drexler, 69, has accrued about $380 million since becoming CEO, including options awards, salary and bonus, according to company filings and a Bloomberg News analysis. He and his private-equity partners have recouped over half their $1.23 billion investment.
Mickey and J. Crew's PEU owners will be OK.  Sleep tight.