JOANN Enters into Agreement to Reduce Debt and Receive $132 Million in New Capital and Related Financial Accommodations with Strong Support of Key Financial and Industry Stakeholders

Rhea-AI Summary

JOANN Inc. announces a Transaction Support Agreement to strengthen its financial position, reduce debt by $505 million, and secure $132 million in new financing. The company continues to operate normally, with commitments to pay all obligations to employees, vendors, landlords, and trade creditors in full. JOANN will become a private company post-restructuring, with stores and website operating as usual.

Insights

Financial Analyst

The announcement by JOANN Inc. regarding its financial restructuring under a prepackaged Chapter 11 process is a significant development with potential implications for its stakeholders, including shareholders, creditors and employees. The planned reduction of approximately $505 million in funded debt and the infusion of $132 million in new financing indicate a strategic move to stabilize the company's balance sheet and improve liquidity. However, this comes at the cost of delisting from Nasdaq, which will affect current shareholders as the company transitions to a private entity.

From a financial perspective, the fact that 95 percent of JOANN's stores are cash flow positive is a positive indicator of the company's operational health, despite the need for restructuring. Investors should note that while the company's trade creditors are expected to be unimpaired, the equity holders are likely to experience significant dilution or even total loss of their investments as the company's shares will no longer be publicly traded.

Market Research Analyst

JOANN's focus on the sewing and fabrics category, coupled with its extensive arts and crafts offerings, positions it uniquely in the retail sector. Its commitment to maintaining uninterrupted operations and preserving trade relationships during the restructuring process suggests a strategic emphasis on customer and supplier continuity. This is important for maintaining the brand's reputation and competitive advantage in a niche market.

As the company aims to drive long-term growth, it is essential to monitor consumer trends in the arts and crafts sector and how JOANN adapts its product assortments and customer experience enhancements to align with these trends. The impact on the broader retail market will depend on JOANN's ability to emerge from the restructuring process as a more financially robust and agile competitor.

Legal Expert

The legal implications of JOANN's prepackaged Chapter 11 filing are noteworthy. The company's decision to use a court-supervised process to facilitate its financial restructuring ensures that it can continue operations while addressing its capital structure needs. The 'first day' motions, which are typical in such cases, are intended to minimize disruption to the business and maintain normalcy for employees and trade partners.

Stakeholders should be aware of the legal processes involved and the potential timeframe for the company's emergence from Chapter 11. The transition to a private company structure post-restructuring will also involve legal complexities, including the renegotiation of existing agreements and potential changes in governance and oversight.

Stores and JOANN.com Remain Open; Company Continues to Operate as Usual

Vendors, Landlords and Other General Unsecured Creditors Are Unimpaired

Company Expects to Reduce Approximately $505 Million in Funded Debt

Implementing Prepackaged Financial Recapitalization Plan on Expedited Basis

HUDSON, Ohio, March 18, 2024 (GLOBE NEWSWIRE) -- JOANN Inc. (NASDAQ: JOAN) (“JOANN” or the “Company”), the nation’s category leader in sewing and fabrics with one of the largest arts and crafts offerings, today announced that it has entered into a Transaction Support Agreement (“TSA” or “Agreement”) with a majority of its financial stakeholders and additional industry financing parties to strengthen the Company’s financial position. In connection with the TSA, the Company has received commitments for approximately $132 million in new financing and related financial accommodations and expects to reduce funded debt on its balance sheet by approximately $505 million. The parties have also agreed to a six-month extension of the Company’s existing ABL and FILO credit facilities, effective upon the Company’s emergence from the court-supervised process. 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.

“Over the past several months, JOANN has made meaningful business improvements through the execution of our Focus, Simplify and Grow cost reduction initiative,” said Chris DiTullio, Chief Customer Officer and co-lead of the Interim Office of the CEO. “We are excited by our progress on both top and bottom-line initiatives in the past year and are confident the steps we are taking will allow JOANN to drive long-term growth. We appreciate the support from our financial and industry stakeholders in this agreement, and their confidence in our ability to continue driving positive business change. There is no other retailer with the same ability to serve sewists, quilters, crocheters, crafters and other creative enthusiasts as we have for the past 80 years, and we take great pride in seeing the passion and engagement of our millions of customers and our Team Members.”

Scott Sekella, JOANN’s Chief Financial Officer and co-lead of the Interim Office of the CEO, added, “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. This includes our more than 800 stores across the United States, 95 percent of which are cash flow positive. We remain committed to our suppliers, partners, Team Members and other stakeholders, and are focused on ensuring we continue to operate as usual so we can continue to best serve our millions of customers nationwide.”

The financial restructuring contemplated by the TSA will be implemented through a prepackaged court-supervised process in which JOANN will continue to operate in the ordinary course of business. JOANN’s stores and the JOANN.com website will remain open and continue operating as normal and customers vendors, landlords, and other trade creditors will not see any disruption in services. The Company remains as focused as ever on providing customers with quality products and services that inspire their creativity.

To effectuate the recapitalization transactions, JOANN and certain of its affiliates have initiated voluntary prepackaged Chapter 11 cases in the U.S. Bankruptcy Court for the District of Delaware. With the significant support of the Company’s financial stakeholders, JOANN expects to complete this process on an expedited basis, as early as late April 2024. Following this process, the Company expects that JOANN will become a private company owned by certain of its lenders and industry parties, and its shares will no longer be listed on Nasdaq or any other national stock exchange.

In connection with this process, JOANN is filing a number of customary “first day” motions to enable it to continue uninterrupted operations during the financial restructuring, including, among others, to continue paying wages and providing benefits to employees and to pay trade vendors and other general unsecured obligations in full in the ordinary course of business.

Additional information regarding JOANN’s financial restructuring is available at JOANNforward.com. Court filings and information regarding the claims process are available at https://cases.ra.kroll.com/Joann, by calling the Company’s claims agent, Kroll, at 844-488-7837 (toll-free in the U.S.) or 646-777-2384 (for international calls), or by sending an email to joanninfo@ra.kroll.com. Additional information can also be found in a Current Report on Form 8-K that the Company will file with the Securities and Exchange Commission at www.sec.gov.

Advisors

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

Gibson Dunn & Crutcher LLP is serving as legal counsel to certain of the Company’s term lenders, with Lazard serving as financial advisor.

About JOANN

For 80 years, JOANN has inspired creativity in the hearts, hands, and minds of its customers. From a single storefront in Cleveland, Ohio, the nation’s category leader in sewing and fabrics and one of the fastest growing competitors in the arts and crafts industry has grown to include 829 store locations across 49 states and a robust e-commerce business. With the goal of helping every customer find their creative Happy Place, JOANN serves as a convenient single source for all of the supplies, guidance, and inspiration needed to achieve any project or passion.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Readers can generally identify forward-looking statements by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “seek,” “vision,” “should,” or the negative thereof or other variations thereon or comparable terminology. Forward-looking statements include those we make regarding the Company’s ability to continuing operating its business and implement the restructuring pursuant to the Chapter 11 cases, including the timetable of completing such transactions, if at all.

The preceding list is not intended to be an exhaustive list of all of the Company’s forward-looking statements. The Company has based these forward-looking statements on its current expectations, assumptions, estimates and projections. While the Company believes these expectations, assumptions, estimates and projections are reasonable, such forward-looking statements are only predictions and involve known and unknown risks and uncertainties, many of which are beyond the Company’s control. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included elsewhere in this press release are not guarantees. Any forward-looking statement that the Company makes in this press release speaks only as of the date of such statement. Except as required by law, the Company does not undertake any obligation to update or revise, or to publicly announce any update or revision to, any of the forward-looking statements, whether as a result of new information, future events or otherwise after the date of this press release.

FAQ

What is the purpose of the Transaction Support Agreement announced by JOANN Inc.?

The purpose is to strengthen the company's financial position, reduce debt by $505 million, and secure $132 million in new financing.

How will JOANN Inc. ensure payment of obligations to employees, vendors, landlords, and trade creditors?

Under the Agreement, all obligations to employees, vendors, landlords, and trade creditors will be paid in full and honored in the ordinary course of business.

What will happen to JOANN Inc. post-restructuring?

JOANN will become a private company owned by lenders and industry parties, and its shares will no longer be listed on Nasdaq or any other national stock exchange.

Where can additional information about JOANN Inc.'s financial restructuring be found?

Additional information can be found at JOANNforward.com, court filings, and by contacting the Company's claims agent, Kroll.