Hancock Fabrics to close 104 stores, exploring alternatives following credit facility default notice

By Caroline Salls

Pittsburgh, March 20 - Hancock Fabrics, Inc. is closing 104 stores as part of its ongoing review of store performance and is exploring its strategic alternatives in an effort to maximize value for shareholders following a notice of default on its bank credit facility, according to an 8-K report filed with the Securities and Exchange Commission.

The notice of default stems from the company's delay in filing its quarterly financial statements for 2006 and from the company's inability to comply with a covenant that requires it to have at least $25 million of excess availability.

The bank group that submitted the notice of default said it intends to increase the interest rate on borrowings and the fees on letters of credit to the default rates, which are 200 basis points higher than normal.

In addition, the bank group said it may direct the company's depository banks to transfer all cash deposits to the bank group in order to pay down borrowings under the credit facility.

According to the 8-K filing, the stores being closed represent about $75 million in annualized sales.

These 104 closings are in addition to 30 store closings announced in February.

Hancock said it has expanded its existing engagement of a national liquidation firm to assist it with the inventory liquidation sales in these stores over the next three to four months and has selected a national real estate firm to assist it in the disposition of the leases for the closing stores.

As these stores are closed, Hancock said charges to earnings will be recorded if the continuing occupancy costs exceed amounts estimated to be recoverable through their disposition.

In addition, as the inventory liquidation sales take place, the company said there will likely be losses incurred as a result of the liquidation pricing.

Hancock Fabrics is a Baldwyn, Miss., specialty retailer of fabric and related home sewing and decorating accessories.

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