JOANN is working with Gordon Brothers to negotiate store leases as the specialty retailer looks to align costs with sales generated at the locations, a spokesperson for JOANN said.

The Leonard Green-backed company, which describes itself as the largest fabrics retailer in the US with over 850 stores in 49 states, has seen its share price trade under USD 1 for months and its first lien loan quoted in the single digits on concerns about its leverage and financial performance.

“JOANN is leaving no stone unturned to better align expenses to current revenues. While sales have normalized to pre-pandemic levels, expenses have increased. JOANN’s eCommerce business has also grown significantly as consumer shopping behavior has evolved, leading to a smaller percentage of total sales coming from in-store traffic,” the spokesperson said in a statement to Debtwire.

Gordon Brothers provides a wide variety of services to help companies maximize liquidity, dispose of assets and address liabilities, according to its website.

Last March, Gordon Brothers’ lending arm and Centerbridge Partners provided JOANN with a USD 100m S+ 975bps FILO loan due in 2026 at the same time as the company’s USD 500m ABL facility matures.

Houlihan Lokey and Latham & Watkins advised JOANN on the FILO facility and continue to work with the company, as reported. An ad-hoc group of first lien loan holders, meanwhile, last year organized with Lazard and Gibson Dunn.

JOANN leases all but one of its store locations with a weighted-average remaining lease term of just over six years on operating leases, according to SEC filings. Long-term operating lease liabilities stood at USD 692m as of 28 October.

The big box locations are not easily leased to new tenants, putting JOANN in a strong position to negotiate concessions with landlords, said a separate source following the situation. Companies typically have maximal leverage to recut leases in bankruptcy when they are allowed to terminate agreements.

In January, Moody’s downgraded JOANN’s corporate rating to Caa3 and warned there is a “high likelihood of a distressed exchange given its unsustainably high leverage and its private equity ownership.” The ratings agency warned that liquidity is limited due to negative free cash flow in fiscal 2024 and USD 406.5m in borrowings under the revolver.

JOANN’s liquidity stood at USD 100m as of 28 October, based on USD 28m of cash and USD 72m availability under its revolver, according to SEC filings.

JOANN’s USD 661m L+ 475bps first lien loan due 2028 was last quoted at 5.46/10.1, according to Markit.

Leonard Green took JOANN public in 2021 and still maintains a majority stake in the company. The private equity group acquired JOANN for USD 1.6bn in 2010.

Representatives for Leonard Green and Gordon Brothers did not return requests for comment.