J. Crew has a little more time to pay rent.
At a remote hearing on Tuesday, a Virginia bankruptcy court approved the retailer’s request to defer paying rent through July 6, roughly 60 days from when it filed for Chapter 11 protection earlier this month.
U.S. Bankruptcy Judge Keith Phillips said even though states around the country are relaxing shelter in place rules, and allowing nonessential retailers to open for business, J. Crew has made its case that it is still facing significant challenges that justify allowing it an extension on rent payments.
J. Crew has opened only seven of its stores so far, though it plans to open 137 stores on May 29 and another 330 stores or so in June, according to its court filings on Monday. The retailer has about 500 leases in the U.S., and its monthly lease obligations are roughly $20 million, according to the retailer.
“Unprecedented liquidity and operational challenges attributable to the global pandemic have led to the closure of essentially all retail store locations, with the resulting loss of revenue,” Phillips said at the hearing.
“The debtor’s timing of its bankruptcy filing doesn’t lessen the impact of the pandemic,” he said.
The landlords, including a group comprising Brookfield Property REIT Inc. and others, had argued that J. Crew shouldn’t be allowed to delay paying rent if it’s legally allowed to reopen stores.
For Brookfield alone, the average monthly rent, or the total monthly rent on its 49 properties, is about $1.5 million, including costs like maintenance, taxes, utilities and insurance, according to Robert LeHane, partner at Kelley Drye & Warren LLP, who represents a group of landlords including Brookfield, Hines Global REIT and Jones Lang Lasalle Americas Inc.
“Landlords, just like tenants, are going through an exceedingly difficult situation,” LeHane said at the hearing. “Landlords have employees to pay, they have employees to train. They have PPE equipment to buy, they have mortgages to pay. J. Crew is not alone in this situation, your honor.”
Companies in bankruptcy generally have to pay their ongoing bills, known as administrative expenses. But in light of the pandemic, J. Crew had cited the examples of other retailers that have filed for bankruptcy this year, including Pier 1 and Modell’s Sporting Goods, that managed to put their rent obligations on hold.
Landlords had argued that those examples no longer apply in light of the lifting of lockdown orders around the country, while Samuel Khalil of Milbank LLP, an attorney for the ad hoc committee of lenders in the case, argued that the retailer cannot hurry to reopen stores while there are ongoing safety concerns.
“Your honor, the fact that shelter orders are lifted in certain states doesn’t mean that the debtors can immediately open up their stores,” he said at the hearing on Tuesday.
“It’s the debtors that decide when to reopen those stores, how to do it in a safe way that doesn’t expose their employees’ health and safety concerns,” he said. “Those I understand are not the concerns of the landlords, but they are the concerns of the debtors, as well as the lenders as the future owners of the company.”
“Moreover, the fact that even if stores could be opened, it doesn’t mean people will be flocking to the malls any time soon,” he added.
J. Crew’s $400 million debtor-in-possession plan essentially proposed an interim budget that banks on getting some extensions to pay rent.
But Phillips noted on Tuesday that the plan also provides exit financing that the retailer expects will pay its administrative claims, including its unpaid rent from during the bankruptcy.