Hancock Fabrics Inc. (fka HKFIQ)

[b4ucry]

DJ Hancock Fabrics Approved to Proceed With Sale Procedures

Feb 25, 2016 12:12:00 (ET)


By Lillian Rizzo


Big-box fabric retailer Hancock Fabrics Inc. received the green light from a bankruptcy judge to move forward with its bidding procedures a week after creditors raised issues with the speedy timeline.

Initially, creditors said the company was on the fast track to liquidation because there wasn't enough time to attract prospective bidders. Hancock filed for bankruptcy in early February with a backup plan in place with liquidator Great American Group.

Hancock's creditors took issue not only with the proposed March auction, saying it wouldn't be enough time to attract other buyers, but also with the breakup fee Great American would receive if it loses at the auction. The court papers call for Great American to receive a breakup fee of $180,000 if it is outbid by a going-concern buyer. However, if the winning bidder is another liquidator, Great American's breakup fee increases to $700,000.

The breakup fee amounts weren't changed, and an auction, if needed, will take place on March 29. Prospective buyers have until March 24 to get their bids in.

The company had already pushed out its sale procedures timeline by about a week due to conflicts with Judge Brendan Shannon's schedule.

A hearing to approve the sale is slated for March 31 before Judge Shannon in the U.S. Bankruptcy Court in Wilmington, Del.

The retailer has said it is trying to find a "going-concern" buyer to keep its nearly 200 stores open. During Hancock's first-day hearing, the retailer's attorney said negotiations with its second-lien lenders regarding a possible credit bid for the company were still ongoing.

Hancock will also set aside $250,000 from its sale proceeds as adequate protection for its secured claims.

The retailer's capital structure consists of $79.9 million in bank debt, a $17.5 million term loan, about $8.2 million in subordinated debt, and roughly $21.2 million in trade claims. Hancock secured bankruptcy financing from bank lenders Wells Fargo Bank NA and GACP Finance Co. in order to keep its doors open throughout the chapter 11 case.

Hancock received approval shortly after filing for bankruptcy to liquidate 70 of its 263 stores.

This is Hancock's second bankruptcy filing since 2007. The retailer blames the challenging business environment on its declining sales, and being burdened by legacy costs that include pensions and retirement benefits. In 2014 Hancock notched just $283 million in sales, and said in court papers it missed holiday sales forecasts by more than $8 million.

The Baldwyn, Mass.-based retailer emerged from its first bankruptcy in 2008 as a smaller company with a plan to keep its remaining stores open and repay all of its lenders, including unsecured creditors, with $100 million in financing received from GE Capital Corp., at the time.

In 2015 Hancock refinanced its debt with a new five-year loan from Wells Fargo and a term loan from GACP Finance.


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