Hancock Fabrics filed for Chapter 11 protection in the Delaware courts.
The fabric chain is considering all options including selling stores or selling the entire business in a single transaction. Hancock has struggled to be competitive with Wal-Mart and Michaels and e-commerce sites like Amazon and also warned last quarter that it was having problems.
“The restructuring is a positive step for the future of the company and we are committed to providing our customers quality fabrics and crafting essentials, both online and in stores. We value our relationships with our vendors and appreciate their support throughout this process. We will continue to offer the same unparalleled service for which the company has been known since its founding in 1957,” said Steve Morgan, president and chief executive officer.
Within the company’s filing with the Securities and Exchange Commission, Hancock Fabrics said on Feb. 1, Wells Fargo delivered a notice of default asserting that one or more events of default had occurred and was terminating its obligation to make loans to Hancock. Wells Fargo also demanded a termination fee of $2 million and a prepayment fee of $700,000.
Hancock Fabrics says it has negotiated up to $100 million in bankruptcy financing from its lenders. Hancock’s bankruptcy leaves many fabric companies with unpaid bills like the $1 million that is owed to Meletex International in New Jersey or the roughly $900,000 owed to Coats and Clark in North Carolina.
This isn’t the first time Hancock has filed for bankruptcy. Back in 2007, the company filed and closed 100 stores. It emerged from bankruptcy one year later. Year-to-date the stock is down 58 percent and last traded at 2.5 cents.
Hancock Fabrics operates 260 retail stores in 37 states.