J.Crew in $430 Million IPO and Related Debt/Equity Restructuring; Complex Transaction was Third Largest Retail Apparel IPO in History

July 3, 2006

Cleary Gottlieb represented J.Crew Group, Inc., a Texas Pacific Group portfolio company, and TPG in the initial public offering and listing on the New York Stock Exchange of J.Crew’s common stock. Cleary Gottlieb also represented J.Crew in complex debt and equity restructuring transactions connected to the IPO. The IPO, which priced above the $15-$17 range at $20 per share on June 27 and closed on July 3, was the third largest retail apparel IPO in history.

In the debt restructuring, J.Crew completed a $290 million cash tender offer for certain outstanding senior subordinated notes. The tender offer was financed by borrowings under a new hybrid secured term loan, under which the term loan lenders received a perfected first or second priority security interest in J.Crew’s assets subject to inter-creditor arrangements agreed to by the lenders under J.Crew’s existing revolving credit facility. The tender offer and term loan closed on May 15. J.Crew will use a substantial portion of the proceeds from the exercise of the IPO overallotment option, which closed on July 3, to repay some of the borrowings under the term loan.

The debt restructuring also included the redemption of another class of outstanding senior discount debentures on June 14 and the conversion of $24 million of subordinated notes held by TPG and J.Crew’s CEO Mickey Drexler into J.Crew’s common stock immediately prior to the close of the IPO.

In the equity restructuring, J.Crew will redeem all of the $120 million 14½% preferred stock it issued as part of its 1997 acquisition by TPG and will pay accumulated dividends of $307 million on that preferred stock on July 13. TPG has also agreed to purchase $73.5 million of J.Crew common stock at the IPO price.

Long-time Cleary Gottlieb client J.Crew is a nationally recognized apparel and accessories brand, offering full lines of high quality women’s and men’s apparel and accessories through its retail and factory stores, catalog and Internet website. In early 2003, under newly-arrived CEO Drexler and President Jeffrey Pfeifle, J.Crew started repositioning its business, including enhancing the design and quality of its merchandise, and adding luxury items to its product line. Since the repositioning, J.Crew has experienced eight consecutive quarters of comparable store sales growth.

In advance of the IPO, J.Crew renegotiated Drexler’s employment agreement to provide for him to continue serving as CEO until mid-2008, and entered into a trademark license agreement with Drexler, under which J.Crew received a 30-year exclusive, worldwide license to use the “Madewell” trademark and associated intellectual property rights Drexler owns to develop a supplemental clothing, footwear and accessories line, which it plans to begin marketing this year. The company also adopted a new equity incentive plan prior to the IPO.