Monday, March 4, 2024

LGP May Bankrupt JOANN

Joann may declare bankruptcy.  The publicly traded company is majority owned by Leonard Green Partners, a private equity underwriter (PEU).

Green bought Joann in 2011 for $1. 6 billion.  In October 2012 it loaded the company with more debt for a dividend (source Moody's).  An SEC filing said the following about that event.

 JOANN Inc. (formerly known as Jo-Ann Stores Holdings Inc.) is the issuer in this offering. Our principal operating subsidiary is Jo-Ann Stores, LLC (formerly Jo-Ann Stores, Inc.), which was previously an independent publicly traded corporation until its acquisition on March 18, 2011 by a subsidiary of Needle Holdings LLC (formerly known as Needle Holdings, Inc.), a company incorporated on December 16, 2010 by LGP for the purpose of the acquisition. On September 19, 2012, Jo-Ann Stores Holdings Inc. was formed solely for the purpose of reorganizing the corporate structure of Needle Holdings LLC and its wholly owned subsidiary Jo-Ann Stores, LLC, and on October 16, 2012, Needle Holdings LLC became our wholly owned subsidiary. Upon consummation of this offering, assuming the sale of 5,468,750 shares in this offering by the Selling Shareholders and 5,468,750 shares by us, LGP will own approximately 69% of our shares of common stock.

That move brought a ratings downgrade.  Moody's described it as:

The downgrade reflects Moody's expectation that Jo-Ann's lease adjusted leverage will remain in excess of 6.5 times, as a continuation of soft operating performance trends experienced since the company's October 2012 leveraged dividend are expected to continue to weigh on credit metrics. 

It's not clear how much cash Leonard Green siphoned from Joann in that dividend recap.

Leonard Green took Joann public in 2021.  It hoped for a $17 share price but got $12.  The S-1 showed the PEU owner received nearly $30 million in management fees since 2016.

Moody's rated Joann B2 in March 2021.  By July 2022 it dropped to B3.  January 2023 saw the rating fall to Caa2.  January 2024  Joann's debt dropped to Caa3.  Moody's stated in that report:

a high likelihood of a distressed exchange given its unsustainably high leverage and its private equity ownership.
High leverage is a hallmark of PEU ownership.  It's doomed many affiliates.  Is that a PEU wildfire on the horizon?  If so, one must act quickly and smartly.  That includes buying discounted debt in order to have an equity stake on the other side of the prepack.

How much discounted Joann debt has LGP purchased in the run up to bankruptcy?  Like most things PEU, it's a secret.

Update 3-18-24:  JOANN filed for bankruptcy today.
"Following this process, the Company expects that JOANN will become a private company owned by certain of its lenders and industry parties.."
Back to my question:   How much discounted Joann debt has LGP purchased in the run up to bankruptcy?  Is failed equity holder LPG now a lender?  It's the PEU way.