J.Crew Shelves Madewell IPO After Deal Crumbles

madewell, j. crew, IPO, debt, negotiations

J.Crew Group is dropping the initial public offering (IPO) of its Madewell spinoff brand after creditor negotiations crumbled, Bloomberg reported Friday (March 20), citing sources familiar with the matter.

After terms couldn’t be reached, J.Crew decided Madewell would not go public anytime soon, sources said. If the market takes a turn for the better, J.Crew could decide to make a counter-proposal, according to the sources.

In February, J.Crew delayed Madewell’s planned March 2 IPO until the end of April. The retailer had said it still had plans to separate Madewell from J.Crew operations.

J.Crew had originally said it hoped that taking its spinoff brand public would bolster its junk-rated balance sheet and provide some relief for its $1.7 billion debt. Some of the debt is going for 87 cents on the dollar.

In 2019, debt negotiations between the retailer and creditors fell apart. Further discussions followed, but there was no deal to take Madewell public in the short term, the sources said.

The agreement suffered due to little interest by investors to put money into a faltering and unpredictable retail sector, especially while the coronavirus tripped up markets, causing further uncertainty. The negotiations were taking place prior to the nationwide shuttering of physical merchants over the pandemic, sources said.

As recent as September 2019, it was uncertain that the CCC-rated J.Crew would be able to make a comeback. S&P Global Ratings pointed to competition from multiple directions — fast-fashion, eCommerce, discounters and the collapse of foot traffic in malls.

Earlier this month, J.Crew announced results for its fiscal year ending Feb. 1, reporting an increase in total revenue to $747.2 million, up 2 percent.

Madewell has seen its sales grow even as J.Crew has languished. Sales were up a remarkable 31 percent at Madewell stores as of July 2018 as sales at J.Crew spiraled downward.