Hancock Fabrics returns to bankruptcy, seeks approval to sell assets

By Caroline Salls

Pittsburgh, Feb. 2 – Hancock Fabrics, Inc. and its wholly owned subsidiaries filed Chapter 11 bankruptcy Tuesday in the U.S. Bankruptcy Court for the District of Delaware to reorganize its capital structure and gain access to liquidity, reduce costs and debt, optimize its store operations and locations to meet customer demands and create the most value for shareholders, according to a news release.

Hancock said it is considering all possible options for maximizing stakeholder value, including the sale of the business as a going concern in either a single transaction or a series of transactions. It is also reviewing investment options with existing stakeholders and third parties.

As part of the restructuring process, the company said it intends to implement a comprehensive program to enhance its customer experience by increasing the availability of associates, in-store classes and training. Hancock said it also intends to feature an enhanced e-commerce presence.

Bid procedures

Hancock requested court approval of the bid procedures for the sale of its assets through a proposed going-out-of-business sale. Great American Group has agreed to serve as “back-up” bidder to conduct the sale, guaranteeing the company 108% of the cost value of its inventory. The back-up bid will serve as a baseline offer for negotiations with prospective bidders.

The company will pay Great American an $180,000 break-up fee if Hancock designates a going-concern bidder as the initial winning bidder or a $700,000 break-up fee if no going-concern bidder has been chosen by the beginning of the auction. Hancock will also reimburse up to $100,000 of Great American’s sale-related expenses.

The bid deadline is 5 p.m. ET on March 9. The auction will be held on March 11, if necessary, and the sale hearing is scheduled for March 14.

“We believe the restructuring is a positive step for the future of the company and we are committed to providing our customers quality fabrics and crafting essentials, both online and in stores,” president and chief executive officer Steve Morgan said in the release.

The company said it plans to continue to operate its business as usual and to fulfill customer orders and pay vendors during the restructuring process.

DIP financing

According to an 8-K filed with the Securities and Exchange Commission, the company obtained a commitment for up to $100 million in debtor-in-possession financing.

Wells Fargo Bank, NA is the DIP agent and swingline lender, and GACP Finance Co., LLC is the term agent.

The facility will provide for the repayment in full in cash of all Hancock’s pre-bankruptcy first-lien senior secured credit facility, fund the fees, costs and expenses related to the DIP credit agreement, fund general corporate purposes and be used for working capital purposes.

The company said the DIP facility consists of a revolving credit facility in a maximum principal amount of up to $80 million and a term loan facility in the total principal amount of $18.29 million.

The financing will mature on the earliest of six months after the bankruptcy filing date, subject to an up to nine month extension, 30 days after the filing date if a final order has not been entered, the effective date of a Chapter 11 plan, the completion of a sale of all or substantially all of the company’s assets, acceleration of the loans and the filing of a motion for dismissal or conversion of the Chapter 11 cases.

Interest will be Base rate plus 150 basis points.

Debt details

According to court documents, Hancock had $151.43 million in assets and $182.08 million of debt as of Jan. 2.

The company’s largest unsecured creditor is Myletex International, based in Passaic, N.J., with a $1 million trade claim.

Hancock did not list any other unsecured creditors with claims of $1 million or more.

Default notice

On Monday, Wells Fargo Bank and GA Capital, LLC delivered a written notice of default and acceleration to Hancock in connection with its pre-bankruptcy credit agreement.

Under the notice, the agents terminated the lenders’ obligations to make loans to Hancock and demanded payment of a $2 million termination fee and a $700,000 prepayment fee, as well as payment of all amounts owed under the pre-bankruptcy facility.

In addition, Hancock said the Chapter 11 filing constituted an event of default under the pre-bankruptcy credit agreement and the indenture governing its floating-rate series A secured notes due 2017.

As of Tuesday, a total of $79.9 million and $8.4 million were outstanding under the credit agreement and the indenture, respectively.

Hancock said any efforts to enforce the payment obligations are automatically stayed as a result of the Chapter 11 filings.

The company said Neil Subin resigned as a member of its board of directors on Feb. 1.

Hancock emerged from a previous bankruptcy in August 2008.

The company is represented by Richards, Layton & Finger, PA.

Hancock Fabrics is a Baldwyn, Miss.-based specialty retailer of fabric and related home sewing and decorating accessories. The Chapter 11 case number is 16-10296.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.