Actionable Ideas for Companies and Sponsors

Utilization of IPCOs or BrandCos in Retailing Restructuring Transactions

As domestic retailers continue to face mounting secular challenges and an unprecedented wave of bankruptcy filings, institutional investors, strategic buyers and retailers themselves are increasingly evaluating the use of both intellectual property companies (“IPCOs”) and BrandCos to attract capital and to redefine their business models.

Regarding IPCO structures, both Claire’s and J Crew have recently used IPCOs to raise incremental capital despite high leverage levels on their respective balance sheets. Claire's established an unrestricted subsidiary that holds 17.5% of Claire's U.S. intellectual property and this subsidiary backed a $130 million loan and a debt exchange that postponed certain of Claire’s maturities. J. Crew also transferred trademarks and other intangible assets valued at $250 million into an unrestricted IPCO subsidiary. Regarding BrandCos, several strategic and financial investors have acquired the intellectual property, including the brand names, of numerous distressed retailers either on a stand-alone basis or in partnership with others who will operate a scaled down version of the retailer’s store footprint or liquidate the assets. This structure has been used in transactions for Aeropostale, Frederick’s of Hollywood, Sharper Image and BCBG.