As consumer preferences continue to evolve with the growth of electronic and mobile commerce, retailers are facing many new challenges, often struggling to survive. To withstand today's retail environment, some retailers need to evaluate an operational and/or financial restructuring, review and adjust their business models, and to improve liquidity, deleverage their balance sheets to reduce overall debt.

Various debt-burdened retailers are looking to their intellectual property assets as a source of untapped value for refinancing transactions. While it remains to be seen which strategies will be most successful, IP assets will play a key role in future retail restructurings. As the value of brick-and-mortar “hard” assets stores becomes tapped out, a retailer's brands, licenses, and associated IP rights may present reliable sources of value.

J. Crew: A Bellwether For IP-Driven Refinancing

Companies and investors alike are keeping an eye on recent high-profile IP-driven refinancing transactions, most particularly by J. Crew, whose restructuring and corresponding IP transfers are the subject of pending litigation. See Eaton Vance Mgmt. v. Wilmington Sav. Fund, No. 654397/2017 (N.Y. Sup. Ct. complaint filed June 22, 2017). In December 2016, the clothing company assigned rights in certain of its trademarks—including its quintessential J.CREW mark—to an unrestricted subsidiary, effectively eliminating an upcoming maturity. The transferred marks were subsequently pledged by the unrestricted sub to back new notes issued as part of a restructuring transaction.

The J. Crew operating companies then entered royalty-bearing license agreements in favor of the unrestricted sub, which provided for use by the restricted sub of the trademarks it had initially owned and pledged, though transferred as part of this restructuring. Certain term loan holders under the original term loan sued the company, alleging that the company's asset transfer violates their term loan agreement, under which the transferred trademarks were pledged.