This chapter explores the use of unrestricted subsidiaries and the 'J. Crew trapdoor' in debt documents, highlighting how certain companies have utilized these strategies to move valuable assets beyond the reach of creditors. It further delves into the J. Crew bankruptcy case and the transfer of assets to fund debt prepayments.
The Covenants by Reorg team discusses how the J Crew Trapdoor could be a red herring and investors need to be alert even if it is not there, how the unrestricted subsidiaries maneuver(made infamous by J Crew) could be used for creative restructurings, recent examples of asset leakage to unrestricted subsidiaries and how investors can demand protection in documents.
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