Introduction

People often invoke “J.Crew” as a stand-in for a host of different transactions where companies have utilised the covenants in their bond or loan documents in unexpected ways to transfer value away from the restricted group. At their most basic level these transactions generally boil down to one of two main structures: (1) assets have been moved to Unrestricted Subsidiaries to facilitate the incurrence of structurally senior “priming” debt that provides new-debtors with a higher claim on assets, or facilitates payments otherwise prevented by the covenants (like repaying subordinated debt); and (2) assets have been moved to Unrestricted Subsidiaries simply to allow the group to raise more debt, make dividends, etc., that they otherwise couldn’t have done as part of the covenant group.