Joann makes pre-packaged Chapter 11 filing, to cut $505 million debt

By Sarah Lizee

Olympia, Wash., March 18 – Joann Inc. made a pre-packaged Chapter 11 filing in the U.S. Bankruptcy Court for the District of Delaware and hopes to cut its debt by $505 million, according to a press release.

The company said it has entered into a transaction support agreement with a majority of its financial stakeholders and additional industry financing parties to strengthen its financial position.

The TSA provides for up to $142 million in additional financing through a debtor-in-possession-to-exit facility, which, together with any payable-in-kind interest, will convert into committed exit financing at emergence.

Wilmington Savings Fund Society, FSB is the DIP agent. The DIP financing is set to mature in 60 days and bear interest at SOFR plus 950 basis points.

The TSA also provides for the refinancing or assumption and continuation of the company’s asset-based lending facility and first-in, last-out term loan facility, and the equitization of the company’s prepetition term loan debt.

The TSA calls for payment or satisfaction in full and in the ordinary course of all general unsecured creditors under the plan, although two vendors will have a portion of their general unsecured claims converted into DIP term loans.

The company said it believes the transactions will position it for long-term viability as a going concern.

Joann’s prepetition term loan lenders will receive any remaining new equity of reorganized Joann under the plan, after dilution by the DIP participation fee, the management incentive plan and new equity interests to be issued to additional financing parties.

The prepetition term loan lenders are being offered the right to participate on a pro rata basis in the super-priority DIP-to-exit term loan facility, comprising backstopped DIP term loans in an aggregate principal amount of $107 million to $117 million – $107 million of committed funding and a $10 million uncommitted accordion facility.

The accordion, subject to the consent of the required DIP lenders, will become available subject to entry of the final DIP/cash collateral order to the extent committed.

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.

“This agreement is a significant step forward in addressing Joann’s capital structure needs, and it will provide us with the financial resources and flexibility necessary to continue to deliver best-in-class product assortments and enhance the customer experience wherever they are shopping with us,” Scott Sekella, chief financial officer, said in the release.

“This includes our more than 800 stores across the United States, 95 percent of which are cash flow positive.”

The company said its stores and website will remain open and continue operating as normal.

Joann is filing a number of customary first-day motions to enable it to continue uninterrupted operations during the financial restructuring.

In its petition, the company reported $2.26 billion in assets and $2.44 billion in debt.

Its largest unsecured creditors are Spinrite Corp., based in Listowel, Ont., with a $12.2 million trade payable claim; Lion Brand Yarn Co., based in Lyndhurst, N.J., with a $7.37 million trade payable claim; Coats & Clark, based in Charlotte, N.C., with a$5.35 million trade payable claim; Ormo Ithalat Ihracat Anonim, based in Istanbul, with a $4.17 million trade payable claim; and Jones Lang Lasalle Americas Inc., based in Chicago, with a $4.04 million trade payable claim.

Latham & Watkins LLP is serving as legal counsel to the company, with Houlihan Lokey serving as financial adviser and Alvarez & Marsal North America, LLC serving as restructuring adviser.

Gibson Dunn & Crutcher LLP is serving as legal counsel to some of the company’s term lenders, with Lazard serving as financial adviser.

Joann is a Hudson, Ohio-based retailer of fabrics and crafts. The Chapter 11 case number is 24-10418.

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