S&P lifts J. Crew, rates notes B

S&P said it raised the corporate credit rating on the J. Crew Group Inc. to CCC+ from SD.

The outlook is negative.

At the same time, the agency withdrew the issue-level rating on the company's $566 million unsecured pay-in-kind (PIK) toggle notes following the distressed exchange of these debt instruments.

S&P also revised the recovery rating on the company's term loan facility to 5 from 4, with an issue-level rating of CCC, indicating an expectation for modest (10% to 30%; estimated recovery: 15%) recovery in the event of a payment default.

Furthermore, the agency also assigned a B issue-level rating to the company's $250 million notes secured by intellectual property with a 1 recovery rating, which indicates an expectation for very high recovery (90% to 100%; estimated recovery: 95%) in the event of payment default or bankruptcy.

“The rating action follows our review of J. Crew capital structure following the company's exchange of the unsecured PIK toggle notes maturing in 2019,” S&P said in a news release.

“The distressed exchange transaction modestly reduced debt levels by about $40 million (as we treat the new preferred stock as debt) and extends the company's debt maturity profile out to 2021.

“However, we also think J. Crew still faces significant operating pressures and our rating reflects our projection for continued operating weakness, modestly negative free operating cash flow, and the still large debt burden. The company's capital structure appears unsustainable in the long term and we do not expect operations will meaningfully improve over the next 12 months,” the agency added in the release.

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