NEW YORK, June 12, 2017 /PRNewswire/ -- J.Crew Group, Inc.
(the "Company") today announced that J.Crew
Brand, LLC ("BrandCo") and J.Crew Brand Corp. ("BrandCorp"
and, together with BrandCo, the "New Notes Co-Issuers"), both
indirect wholly-owned subsidiaries of the Company, and Chinos
Holdings, Inc., the ultimate parent of the Company ("Parent" and,
collectively with the New Notes Co-Issuers, the "New Securities
Issuers"), have commenced a private offer (such offer, the
"Exchange Offer") to certain eligible noteholders described below
to exchange any and all of the outstanding $566.5 million aggregate principal amount of
7.75%/8.50% Senior PIK Toggle Notes due 2019 (CUSIP Nos 16961UAA4
and U1680U AA3, ISIN Nos US16961UAA43 and USU1680UAA35) (the "Old
Notes") issued by Chinos Intermediate Holdings A, Inc., a direct
wholly-owned subsidiary of Parent (the "Old Notes Issuer"), for
newly issued:
(i) 13% Senior Secured Notes due
2021 to be issued by the New Notes Co-Issuers in an aggregate
principal amount of up to $250
million (the "New Notes" and, together with the New
Guarantees (as defined herein), the "New Debt Securities"),
(ii) shares of Parent's 7%
non-convertible perpetual preferred stock, series A, no par value
per share, with an aggregate initial liquidation preference of up
to $190,000,000 (the "New Series A
Preferred Stock") and
(iii) shares of Parent's class A
common stock, $0.00001 par value per
share (the "Class A Common Stock" and, collectively with the New
Series A Preferred Stock and the New Debt Securities, the "New
Securities"), representing up to approximately 15% of the common
equity of Parent, in each case, upon the terms and conditions set
forth in the Confidential Offering Memorandum and Consent
Solicitation Statement, dated June 12,
2017 (the "Offering Memorandum").
The purpose of the Exchange Offer is to refinance the Old Notes
to reduce the consolidated indebtedness of Parent and its
subsidiaries and to extend the average maturity thereof. The
Exchange Offer is conditioned on a minimum of 95% of the
outstanding aggregate principal amount of Old Notes being validly
tendered, not withdrawn and accepted in the Exchange Offer.
This condition may not be waived without the consent of certain
holders of outstanding Old Notes and their affiliates that also
hold a portion of term loans under the Term Loan Facility (as
defined below) (such holders, the "Ad Hoc Creditors").
Eligible holders who validly tender their Old Notes in the
Exchange Offer prior to 5:00 p.m.,
New York City time, on
June 23, 2017 (such date and time, as
it may be extended, the "Early Deadline") and do not validly
withdraw their tender prior to 5:00
p.m., New York City time,
on June 23, 2017 (such date and time,
as it may be extended, the "Withdrawal Deadline") will receive the
Total Exchange Consideration. "Total Exchange Consideration"
means, for each $1,000 principal
amount of Old Notes validly tendered, not withdrawn and accepted by
the New Securities Issuers:
(i) $441.308013 principal amount of New Notes (which
includes the "Early Tender Payment" of $40 principal amount of New Notes per
$1,000 principal amount of Old Notes
tendered),
(ii) $335.394 initial liquidation preference (0.335394
shares) of New Series A Preferred Stock, and
(iii) 30.695204 shares of Class A
Common Stock, in each case subject to rounding.
Eligible holders who validly tender and do not validly withdraw
Old Notes in the Exchange Offer after the Early Deadline, but prior
to 11:59 p.m., New York City time, on July 10, 2017 (such date and time, as it may be
extended, the "Expiration Time"), will receive the "Exchange
Consideration," which is the Total Exchange Consideration less the
Early Tender Payment for Old Notes accepted in the Exchange Offer.
The "Settlement Date" is expected to be three business days after
the Expiration Time, but in no event later than the fifth business
day following the Expiration Time. Holders whose Old Notes are
accepted in the Exchange Offer will not receive additional
consideration in respect of any accrued and unpaid interest on such
Old Notes from and including the last interest payment date on such
Old Notes to, but not including, the Settlement Date. The New Notes
will mature on September 15, 2021,
bear interest at a rate of 13% per annum, payable semi-annually in
cash in arrears, and will be fully and unconditionally guaranteed
as to payment of principal, premium, if any, and interest, jointly
and severally, on a senior secured basis, by J. Crew Brand
Intermediate, LLC, the direct parent of BrandCo ("Parent
Guarantor"), J. Crew Domestic Brand, LLC ("IPCo") and J. Crew
International Brand, LLC (together with IPCo, the "Subsidiary
Guarantors"), each of which is an indirect domestic subsidiary of
the Company (each, a "Guarantor" and collectively, the
"Guarantors"). The guarantees of the Guarantors are
collectively referred to herein as the "New Guarantees." BrandCorp,
the corporate co-issuer of the New Notes, is a wholly-owned
subsidiary of BrandCo, has no assets and is not expected to have
any cash flow to apply to payments on the New Notes.
The New Debt Securities will be secured (subject to permitted
liens under the indenture governing the New Notes (the "New Notes
Indenture")) by (a) first-priority liens on (i) the Initial
Transferred IP (as defined below), (ii) IPCo's rights under the
Intellectual Property License Agreement that IPCo entered into on
December 6, 2016 with J.Crew
International, Inc., an indirect wholly-owned subsidiary of the
Company ("JCI"), and J.Crew Operating Corp., a direct wholly-owned
subsidiary of the Company ("OpCo") (solely in its capacity as payor
on behalf of JCI), pursuant to which JCI transferred a 72.04%
undivided interest in certain of its U..S. intellectual property
assets (the "Initial Transferred IP") to IPCo (such agreement, as
will be amended and restated concurrently with the settlement of
the Exchange Offer, the "A&R IP License Agreement"), (iii) a
pledge of 100% of the equity interests of the New Notes Co-Issuers
and the Subsidiary Guarantors, including IPCo (the "IP Group
Pledge"), and (iv) substantially all other assets of the New Notes
Co-Issuers and the Guarantors (including (x) any cash held by the
New Notes Co-Issuers or any of the Guarantors, (y) certain
intercompany loans described in the Offering Memorandum and (z) any
Old Notes validly tendered, not withdrawn and accepted in the
Exchange Offer, which will not be cancelled but will continue to be
held by BrandCo, subject to the terms of the New Notes Indenture)
(collectively, the "Other IP Group Assets"); and, in the event the
Term Loan Transactions (as defined below), are completed, (b)
second-priority liens on (i) the Additional Transferred IP (as
defined below) and (ii) IPCo's rights under the new Intellectual
Property Agreement that IPCo will enter into on the Settlement Date
with JCI and OpCo (solely in its capacity as payor on behalf of
JCI) substantially in the form of the A&R IP License Agreement
(the "Additional IP License Agreement").
IPCo's assets currently consist solely of (i) the Initial
Transferred IP, consisting of certain U.S. intellectual property
rights currently used by the Company and its subsidiaries in the
conduct of their business and (ii) its rights under the A&R IP
License Agreement. Pursuant to the A&R IP License Agreement,
the Company and certain of its subsidiaries will continue to
exclusively use the Transferred IP (as defined below) and OpCo, on
behalf of JCI, will pay to IPCo a fixed license fee of $42.5 million per annum or, in the event
Term Loan Transactions are completed and the Additional IP License
Agreement entered into, an aggregate of $59.0 million per annum, payable
semi-annually.
Parent will pay, to the extent of lawfully available funds, cash
dividends on the New Series A Preferred Stock, when, as and if
declared by Parent's board of directors (or a duly authorized
committee thereof). Dividends on the New Series A Preferred
Stock will be cumulative and accrue from the Settlement Date at a
rate of 7% per annum, payable at a rate of 5% per
annum in cash and 2% per annum through an increase in
liquidation preference, in each case, semiannually, in arrears, on
September 15 and March 15 of each year, commencing on September 15, 2017.
Equity Recapitalization
Subject to the closing of the Exchange Offer, and concurrently
therewith, a majority in interest of the current holders of
Parent's Class L Common Stock, par value $0.001 per share (the "Class L Common Stock"),
including TPG Capital, L.P. (together with its affiliates, "TPG")
and Leonard Green & Partners,
L.P. (together with its affiliates, "LGP" and, together with TPG,
the "Sponsors"), will elect to convert all the outstanding shares
of Class L Common Stock into (i) 110,000 shares of Parent's 7%
non-convertible perpetual preferred stock, Series B, no par value,
with an initial liquidation preference of $1,000 per share ($110
million aggregate initial liquidation preference) that will
be pari passu with the New Series A Preferred Stock (the
"New Series B Preferred Stock"), and (ii) 95,350,555.66 shares of
Parent's Class A Common Stock (collectively, the
"Recapitalization").
Dividends on the New Series B Preferred Stock will accrue from
the Settlement Date at a rate of 7% per annum,
semi-annually, in arrears, on September
15 and March 15 of each year,
commencing on September 15,
2017. After distributions have been made on the New Series B
Preferred Stock that equal the liquidation preference thereof and
all accrued dividends thereon, the holders of the New Series B
Preferred Stock shall be entitled to receive, in the aggregate,
approximately 3% of the sum of any distributions made in respect of
Class A Common Stock.
In connection with the Recapitalization, the Principal Investors
Stockholders' Agreement, dated as of March
7, 2011, among Parent, the Old Notes Issuer, Chinos
Intermediate Holdings B, Inc., an indirect wholly-owned subsidiary
of Parent ("Intermediate Holdings B"), the Company, the Sponsors
and the other stockholders party thereto, will be amended and
restated to provide that the holders of the Class A Common Stock
will be subject to certain rights and obligations as set forth in
greater detail therein.
In connection with the Exchange Offer, the Company intends to
implement a new management incentive plan, pursuant to which it is
expected that certain officers and employees of the Company will be
entitled to receive equity awards of up to 10% of the Class A
Common Stock outstanding after the Exchange Offer and up to
$20 million in initial liquidation
preference of additional New Series B Preferred Stock of Parent.
The Class A Common Stock component of the new management incentive
plan will dilute all holders of the Class A Common Stock. Any
additional New Series B Preferred Stock will be in addition to the
New Series B Preferred Stock.
The Proposed Term Loan Transactions
Concurrently with the Exchange Offer, the Company is seeking to
amend its Amended and Restated Credit Agreement, dated as of
March 5, 2014 (the "Term Loan
Agreement"), by and among, inter alios, the Company, Intermediate
Holdings B, Wilmington Savings Fund Society, FSB, as Administrative
Agent (the "Term Loan Agent"), and the Lenders party thereto (such
amendment, the "Term Loan Amendment").
If requisite consents are received for the Term Loan Amendment,
the Company will engage in a series of transactions (the "Term Loan
Transactions") concurrently with the settlement of the Exchange
Offer, including the purchase of $150
million principal amount of term loans under the Term Loan
Agreement held by lenders who consent to the Term Loan Amendment at
par plus accrued interest thereon; additional borrowings under the
Term Loan Agreement of $30 million
principal amount (at a 2% discount), to be provided by new or
existing lenders, or in lieu thereof, one or more Sponsors (or
affiliates thereof), the net proceeds of which will be applied by
the Company to finance the refinancing, redemption or repurchase of
term loans referenced above; the issuance of $97 million principal amount of New Private
Placement Notes (as defined below) at a 3% discount in a private
placement (the "Concurrent Private Placement") pursuant to the
terms of the Note Purchase Agreement (as defined below), the
proceeds of which will be lent on a subordinated basis by BrandCo
to the Company to finance the refinancing, redemption or repurchase
of term loans referenced above; the contribution by JCI to IPCo of
the remaining undivided 27.96% ownership interest of certain U.S.
intellectual property rights not previously included in the
Initial Transferred IP (the "Additional Transferred IP" and,
together with the Initial Transferred IP, the "Transferred IP"), in
which case, the references herein to the "Transferred IP" will
include an aggregate 100% ownership interest in such U.S.
intellectual property rights); and a direction to the Term Loan
Agent to dismiss, with prejudice, certain litigation relating to
the assignment of the Initial Transferred IP (and related
matters).
The Exchange Offer is not conditioned upon approval of the Term
Loan Amendment. However, if requisite consents for the Term Loan
Amendment are obtained, the settlement of the Exchange Offer will
be conditioned upon the completion of the Term Loan Transactions.
If the Term Loan Amendment is not approved, the Term Loan
Transactions will not be completed, but, if the conditions to the
Exchange Offer are satisfied or waived, the Exchange Offer will be
consummated.
Restructuring Support Agreement
The Ad Hoc Creditors have entered into a Restructuring Support
Agreement (the "RSA"), dated June 12,
2017, with Parent and certain of its subsidiaries and
affiliates, pursuant to which, subject to the terms and conditions
thereof, the Ad Hoc Creditors agreed to take certain actions in
support of the Term Loan Transactions, including (i) voting in
favor of the Term Loan Amendment as lenders under the Term Loan
Agreement; and (ii) if the Term Loan Transactions are consummated,
subject to the terms and conditions contained in the Note Purchase
Agreement, purchasing an aggregate of $97
million principal amount of the New Private Placement Notes
in the Concurrent Private Placement. In addition, the Ad Hoc
Creditors hold approximately 67% of the outstanding Old Notes and
have agreed to tender their Old Notes in the Exchange Offer, which
contains a 95% minimum tender condition, provided that each Ad Hoc
Creditor may withhold or tender in its discretion 3% of the
outstanding Old Notes (6% total), and provided further that if one
Ad Hoc Creditor tenders any withheld Old Notes in the Exchange
Offer, the other Ad Hoc Creditor is required to tender its withheld
Old Notes in the Exchange Offer. The agreements and obligations of
the Ad Hoc Creditors under the RSA are subject to the conditions,
restrictions and provisions contained therein.
Note Purchase Agreement and Concurrent Private
Placement
The Company, the New Notes Co-Issuers and the Guarantors have
entered into a Note Purchase Agreement (the "Note Purchase
Agreement"), dated June 12, 2017,
with the Ad Hoc Creditors, pursuant to which, the Ad Hoc Creditors
have agreed, in the event the Term Loan Transactions are completed,
to purchase $97 million principal
amount of an additional series of 13% Senior Secured Notes due 2021
(the "New Private Placement Notes") to be issued by the New Notes
Co-Issuers at a 3% discount in the Concurrent Private Placement.
The agreements and obligations of the Ad Hoc Creditors under the
Note Purchase Agreement are subject to the conditions, restrictions
and provisions contained therein.
The New Private Placement Notes will be governed by an indenture
substantially in the form of the New Notes Indenture and will also
be guaranteed by the Guarantors. In the event the Term Loan
Transactions are completed and the New Private Placement Notes are
issued in the Concurrent Private Placement, the New Private
Placement Notes and the guarantees thereof will be secured (subject
to permitted liens under the indenture governing the New Private
Placement Notes) by (a) first-priority liens on (i) the Additional
Transferred IP, (ii) IPCo's rights under the Additional IP License
Agreement, (iii) the IP Group Pledge, and (iv) the Other IP Group
Assets; and (b) second-priority liens on (i) the Initial
Transferred IP and (ii) IPCo's rights under the A&R IP License
Agreement.
Consent Solicitation
In conjunction with the Exchange Offer, the Old Notes Issuer is
soliciting consents (the "Consent Solicitation") from holders of
the Old Notes to suspend, subject to certain conditions,
substantially all of the covenants, restrictive provisions and
events of default under the indenture governing the Old Notes (the
"Old Notes Indenture") and provide the Old Notes Issuer, any
guarantor under the Old Notes Indenture and any of their respective
affiliates, in each case, that holds the Old Notes, with the
ability to vote on directions, waivers and consents under the Old
Notes Indenture. The Exchange Offer is conditioned upon the
completion of the Consent Solicitation. The Ad Hoc Creditors
have agreed pursuant to the RSA, subject to the terms and
conditions thereof, to tender Old Notes (and thereby provide
consents) with respect to a sufficient principal amount of Old
Notes to ensure adoption of the Proposed Amendments, which will
become operative only upon completion of the Exchange Offer.
Holders who validly tender (and do not validly withdraw) their Old
Notes pursuant to the Exchange Offer will be deemed to have
delivered their consents pursuant to the Consent Solicitation by
such tender. Holders may not deliver consents without tendering
their Old Notes, and holders may not tender their Old Notes without
delivering consents.
Old Notes subject to the Exchange Offer and Consent Solicitation
may be validly withdrawn at any time on or before the Withdrawal
Deadline, but not thereafter, even if the Early Deadline or
Expiration Time is extended. The valid withdrawal of tendered Old
Notes prior to the Withdrawal Deadline will be deemed to be a
concurrent revocation of the corresponding consent.
Available Documents and Other Details
Documents relating to the Exchange Offer and the Consent
Solicitation will only be distributed to noteholders who complete
and return an eligibility form confirming that they are either a
"qualified institutional buyer" under Rule 144A or not a "U.S.
person" under Regulation S for purposes of applicable securities
laws.
Noteholders who desire to complete an eligibility form should
either visit the website for this purpose at
http://main.dfking.com/jcrew/index.asp or request instructions by
sending an e-mail to jcrew@dfking.com or calling D.F. King & Co., Inc., the information agent
for the Exchange Offer and Consent Solicitation, at 800-714-3306
(U.S. Toll-free) or 212-269-5550 (Collect).
The New Securities will not be registered under the Securities
Act of 1933, as amended (the "Securities Act"), or any other
applicable securities laws and, unless so registered, the New
Securities may not be offered, sold, pledged or otherwise
transferred within the United
States or to or for the account of any U.S. person, except
pursuant to an exemption from the registration requirements
thereof. Accordingly, the New Securities are being offered
and issued only (i) to "qualified institutional buyers" (as defined
in Rule 144A under the Securities Act) and (ii) to non-"U.S.
persons" who are outside the United
States (as defined in Regulation S under the Securities
Act). Non U.S.-persons may also be subject to additional
eligibility criteria.
The complete terms and conditions of the Exchange Offer and
Consent Solicitation are set forth in the informational documents
relating to the Exchange Offer and Consent Solicitation. This press
release is for informational purposes only and is neither an offer
to purchase nor a solicitation of an offer to sell the New
Securities. The Exchange Offer and Consent Solicitation are
only being made pursuant to the Confidential Offering Memorandum
and Consent Solicitation Statement and the related letter of
transmittal. The Exchange Offer is not being made to holders
of Old Notes in any jurisdiction in which the making or acceptance
thereof would not be in compliance with the securities, blue sky or
other laws of such jurisdiction.
Cautionary Note Regarding Forward-Looking Statements
Certain statements herein, including statements regarding the
Exchange Offer and Term Loan Transactions, are "forward-looking
statements" made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. Such
forward-looking statements reflect the Company's current
expectations or beliefs concerning future events, and actual
results of operations may differ materially from historical results
or current expectations. Any such forward-looking statements are
subject to various risks and uncertainties, including the Company's
substantial indebtedness and the indebtedness of its indirect
parent, the retirement, repurchase or exchange of its indebtedness
or the indebtedness of its indirect parent, its substantial lease
obligations, its ability to anticipate and timely respond to
changes in trends and consumer preferences, the strength of the
global economy, declines in consumer spending or changes in
seasonal consumer spending patterns, competitive market conditions,
its ability to attract and retain key personnel, its ability
to successfully develop, launch and grow its newer concepts and
execute on strategic initiatives, product offerings, sales channels
and businesses, its ability to implement its growth strategy,
material disruption to its information systems, its ability to
implement its real estate strategy, adverse or unseasonable
weather, interruptions in its foreign sourcing operations, and
other factors which are set forth in the section entitled "Risk
Factors" and elsewhere in the Offering Memorandum and in the
Company's Annual Report on Form 10-K, Quarterly Report on Form 10-Q
and in all filings with the SEC made subsequent to the filing of
the Form 10-Q. Because of the factors described above and the
inherent uncertainty of predicting future events, the Company
cautions you against relying on forward-looking statements, whether
as a result of new information, future events or otherwise.
About J.Crew Group, Inc.
J.Crew Group, Inc. is an internationally recognized omni-channel
retailer of women's, men's and children's apparel, shoes and
accessories. As of June 12, 2017, the
Company operates 278 J.Crew retail stores, 117 Madewell stores,
jcrew.com, jcrewfactory.com, the J.Crew catalog, madewell.com, and
178 factory stores (including 39 J.Crew Mercantile stores). Certain
product, press release and SEC filing information concerning the
Company are available at the Company's website www.jcrew.com.
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SOURCE J.Crew Group, Inc.