Hancock Fabrics Declares Chapter 11, Obtains Financing
March 26, 2007-- Home Textiles Today,
On March 21, struggling fabric and craft retailer Hancock Fabrics announced it had filed a voluntary petition for Chapter 11 relief in the United States Bankruptcy Court for the District of Delaware, and said its subsidiaries were also filing for the same relief. Hancock said it will "use the reorganization process to improve the company's operating performance, reduce its secured debt over time, close underperforming locations, and exit Chapter 11."
Hancock announced that it has negotiated a consensual $105 million DIP (debtor-in-possession) financing arrangement with Wachovia Bank, in which Hancock "will gain additional borrowing capacity necessary to operate successfully under Chapter 11." The company said it was also in the final stages of negotiating an additional loan of up to $17.5 million with another lender.
Jane Aggers, president and ceo, said, "The process of reorganizing Hancock Fabrics under Chapter 11 is a necessary step to reposition the company for the future. It allows us to focus our attention and resources entirely on further improving our better-performing stores and right-sizing our back-office operations and distribution center. We intend to complete the reorganization as quickly as possible, while taking the actions necessary to preserve value for our creditors, customers, employees and other stakeholders."
A day earlier, Hancock said it would close 104 stores, beyond the 30 store closings announced in early February. At the beginning of the year, the chain operated 403 stores in 40 states.
Hancock also said it received a notice of default (which contained warnings of imminent interest rate and fee increases on borrowings, as well as possible cash transfer demands) from its bank group, in part because Hancock had delayed filing its quarterly financial statements for 2006.
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