Related documents:
Petition
First day declaration
Cash collateral motion
Bid procedures motion
Eight months after exiting chapter 11 with a prepackaged plan of reorganization, JOANN Inc. returns to bankruptcy court today (Jan. 15)—this time armed with a Gordon Brothers Retail Partners stalking horse bid to liquidate the company’s 800 stores.
Though the Gordon Brothers bid contemplates a liquidation, interim CEO Michael Prendergast said in his first day declaration that the company “has going-concern potential if given an opportunity to achieve that potential.” To that end, the company has proposed a sale process leading to a Feb. 14 auction of its assets.
The US Bankruptcy Court for the District of Delaware has not yet assigned a judge to the case or scheduled a first day hearing to consider the company’s use of cash collateral and other operational motions.
The business and the first chapter 11 case
Founded in 1943 as Cleveland Fabric Shop in Cleveland, Ohio, the single store grew to an 18-location chain over the next 20 years and changed its name to Jo-Ann Fabrics. In the following decades, the company would go public and become the country’s largest fabric and crafts retailer by 1998. In 2011, private equity firm Leonard Green & Partners took JOANN private, but it would go public again in 2021.
Today, the company operates 800 stores in 49 states with 19,000 employees, 3,400 of whom are full-time. For fiscal year 2024, the company saw net sales of $2bn, with $1.1bn coming from the sales of arts and crafts and home décor and the remaining $900mn from sewing products. JOANN leases all of its properties and pays $26mn in rent and occupancy-related costs.
The company also has three distribution centers in Ohio, California and Alabama, and an e-commerce fulfillment center in Ohio.
Source: First day declaration
JOANN filed for chapter 11 for the first time on March 18, 2024, with a prepackaged plan that would cut its $1bn debt funded debt load nearly in half to $555mn, through the equitization of $658.1mn in prepetition term loans and injection of $132mn in new financing. Through the plan, confirmed in April 2024, the company’s debtor-in-possession financing providers took 85% of the reorganized company’s equity. Below, see the company’s 10 largest current equity holders:
Source: First day declaration
Coming into the new case, the company owes $462mn on an ABL/FILO facility with Bank of America as administrative and collateral agent plus $153mn on a term loan with Wilmington Savings Fund Society as administrative agent.
Source: First day declaration
The company also owes $133mn in unsecured trade debt.
The road to ‘chapter 22’
Coming out of the first case, the company struggled in the face of a “stagnant retail economy,” inflation, and high interest rates, Prendergast said in his declaration. Upon the company’s emergence, an unnamed “key competitor” lowered prices on 5,000 arts and crafts and home décor items. JOANN struggled to stock key items, its in-stock levels dropping to 90% in the summer of 2024, the lowest in a decade.
The company brought on Alvarez & Marsal shortly after exiting the first case to provide management services, and in December geared up for a restructuring when it hired Centerview Partners to explore a sale or new financing and Kirkland & Ellis as restructuring counsel. LFI reported last week that the company had missed an interest payment on the exit term loan.
Citing the inventory shortages and a reduction in borrowing availability under its credit facilities, JOANN filed for chapter 11 this morning. The liquidation bid from Gordon Brothers would repay the FILO/ABL debt and contribute certain wind-down payments and other payments. In its bid procedures motion, JOANN is proposing the following sale timeline:
Source: Bid procedures motion
Pat Holohan
patrick.holohan@levfininsights.com
+1 917 654 0337