Hancock Fabrics Inc. (fka HKFIQ)

[b4ucry]

DJ Creditors Seek to Slow Down, Open Up Hancock Fabrics Auction

Feb 19, 2016 12:38:00 (ET)


By Peg Brickley


Creditors warn that Hancock Fabrics Inc. is on the fast track to liquidation unless auction rules are made more inviting for bidders willing to save the big-box fabric retailer.

Hancock has said it is trying to find a "going-concern" buyer willing to keep some of its almost-200-store chain in operation. But it has signed a backup deal with liquidator Great American Group on terms that the official committee of unsecured creditors doesn't like.

Bondholders and an unnamed strategic bidder that have expressed interest in the company have yet to produce an offer for Hancock. The creditors committee says Hancock needs time to attract more bidders, and it needs to avoid locking in favorable terms with Great American that would frighten off competitors.

The committee has asked that the auction that is now targeted for March be pushed to April. Hancock Fabrics does have a chance to turn around in bankruptcy, the committee said, and should be afforded the opportunity.

Creditors' lawyers focused particularly on the "excessive, unwarranted and unnecessary" breakup fee Great American would earn if it loses at the bidding. According to the creditors, if Great American is beaten by a going-concern buyer, it is entitled to a breakup fee of $180,000. But if another liquidator bests Great American in the competition, the breakup fee jumps to $700,000.

That is a feature of the bid rules unsecured creditors say will effectively squelch offers from rival liquidators.

"The use of the breakup fee to target other potential liquidation bids is a transparent attempt to muscle out the competition and is highly prejudicial to the interests of creditors and contrary to the principle that bankruptcy auctions should be fair, open, and designed to maximize value for creditors," lawyers for the committee wrote in court papers.

Great American couldn't immediately be reached Friday to respond to the criticism, which surfaced in papers filed Thursday in the U.S. Bankruptcy Court in Wilmington, Del.

One of the country's largest fabric retailers, Baldwyn, Miss.-based Hancock filed for chapter 11 bankruptcy on Feb. 2, and began liquidating 70 of its stores. The filing marked Hancock's second time in chapter 11. An earlier case came to a happy ending in 2008, with creditors paid in full and shareholders hanging on to their stakes in a revived retailer.

Hancock blamed high retiree costs and disappointing sales for its need to return to bankruptcy.


(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)