Distressed retail paper higher after Joann bankruptcy; Michaels, Staples notes improve

By Cristal Cody

Tupelo, Miss., March 18 – Distress in the retail space expanded on Monday on the Chapter 11 bankruptcy filing of fabric and craft retailer Joann Inc.

The Hudson, Ohio-based company said that it entered into a transaction support agreement with a majority of its financial stakeholders and other financing parties and has received commitments for approximately $132 million in new financing and related financial accommodations.

While Joann does not have outstanding bonds, the company reported in 2023 that it had around $1.15 billion of long-term debt.

The company sounded bullish on plans to reorganize.

Joann expects to reduce funded debt by approximately $505 million as part of the bankruptcy process in the U.S. Bankruptcy Court for the District of Delaware.

The retailer will become privately owned following the bankruptcy process, which could be completed as early as late April, and its stock will no longer trade on the Nasdaq.

Shares traded in the prior week at a quarter and closed Monday down 20.57% to 18 cents. The stock has been below $1 a share since September.

Joann chief financial officer Scott Sekella said in Monday’s announcement that the company’s more than 800 Jo-Ann stores across the United States are cash flow positive.

The company expects “to operate as usual,” Sekella said.

Under the TSA and related transaction documents, all obligations to employees, vendors, landlords and other trade creditors will be paid or otherwise satisfied in full and honored in the ordinary course of business.

Joann said it will continue to operate stores and its web site as normal “and customers, vendors, landlords, and other trade creditors will not see any disruption in services.”

High dollar merchandise prices, blamed for some sluggish sales, are expected to come down to more friendlier prices, a source said.

“I think they’ve closed the stores not operating the strongest,” the source said.

Locations were up and running Monday with stocked shelves and typical regular sales, including winter fabric clearances and buy one, get two free, on some merchandise, the source said.

The bankruptcy had long been expected with numerous analysts pulling back coverage of the retailer.

“We don’t cover them anymore,” one source said Monday.

Retail consumption has slowed and consumers have become “discerning” in their spending, according to market chatter at last week’s Bank of America 2024 Consumer & Retail Conference in Miami, according to a BofA Securities research note.

“Spenders have allocated dollars away from apparel and they’re seeking value, a reason Walmart is taking share of high-income consumers,” BofA said.

Bank of America aggregated credit and debit card spending per household fell by 0.2% year over year in January and remained soft but stable in February, according to the note.

Paper in other troubled retailers has been on the mend in late February and so far in March.

Distressed arts and crafts retailer Michaels Cos, Inc.’s 7 7/8% senior notes due 2029 (Caa2/CCC-) edged up 1/8 point on Monday in light trading.

The notes have added nearly 10 points over the past month.

Office supplies retailer Staples Inc.’s 10¾% senior notes due 2028 (Caa2/CCC) “are up,” a source said Monday. “Not much traded.”

The bonds have climbed around 15 points over the past month.

Distressed secondary trading overall was lighter as the week kicked off, sources reported.

“The market was up,” a source said. “It was very quiet.”

Market focus this week shifts to the Federal Reserve’s March policy decision due Wednesday, though no rate changes are anticipated, sources said.

Stock indices were mostly higher on the day. The Nasdaq rose 0.82%.

The iShares iBoxx High Yield Corporate Bond ETF increased 18 cents, or 0.23%, to $77.25.

Measured market volatility waned. The CBOE Volatility index fell 0.56% to 14.33.

Michaels slightly better

Michaels’ 7 7/8% senior notes due 2029 (Caa2/CCC-) traded 1/8 point better on Monday at 69 1/8 bid with a 17.18% yield on $2 million of volume, a source said.

The notes have added nearly 10 points over the past month. The issue was quoted on Feb. 20 with a 60 bid handle.

The Irving, Tex.-based arts and crafts retailer was taken private in 2021 by funds managed by Apollo Global Management, Inc. affiliates.

Staples higher

Staples’ 10¾% senior notes due 2028 (Caa2/CCC) have climbed around 15 points over the past month, a market source said.

The bonds were quoted on Monday up less than 1/8 point with a 93 bid handle on about $4 million of volume.

The issue was quoted on Feb. 27 at 88 bid with a 15.7% yield and on Feb. 20 at 78½ bid and with a 20.3% yield.

Staples in February reported to investors and analysts stronger fourth-quarter results.

The Framingham, Mass.-based office products retail company is owned by private equity firm Sycamore Partners.

Distressed returns improve

S&P U.S. High Yield Corporate Distressed Bond index one-day total returns finished Friday higher at 0.07%, compared to negative 0.47% on Thursday.

Returns were 0.22% on Wednesday, 0.38% on Tuesday and 0.18% at the prior week’s start.

Month-to-date total returns were 1.37% on Friday, 1.3% on Thursday, 1.78% on Wednesday, 1.55% on Tuesday and 1.17% in the first session of the week.

Year-to-date total returns were at 4.02% at the end of the week versus 3.95% on Thursday, 4.44% on Wednesday, 4.21% on Tuesday and 3.82% at the start of the week.

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