May 25, 2011 – By Tom Hals
WILMINGTON, Delaware (Reuters) - Jackson Hewitt Tax Service Inc <JTHX.PK> expects quick approval of its bankruptcy plan, which would turn over the second-largest U.S. tax preparer to lenders led by Bayside Capital, the company's attorney said on Wednesday.
The company filed for bankruptcy on Tuesday just weeks after the end of the tax season as a way to restructure a bank loan coming due in October. It said it hoped to restructure in 60 days or less.
Jackson Hewitt got into trouble with lenders as it failed to secure full funding for tax-refund loans, a key covenant in its credit agreement.
Jackson Hewitt already has approval for the bankruptcy plan from all 10 holders of its $357 million bank debt, according to Mark McDermott, an attorney with Skadden, Arps, Slate, Meagher & Flom LLP, which represents the company.
The company's bank debt is worth more than the entire value of the business, which the company's advisers determined to be $225 million.
"Unfortunately, this is a case where nothing is left for unsecured creditors," McDermott said. "The value proposition just isn't there."
He said the company expects to continue its main business of preparing tax returns and is already getting ready for next tax season, which begins in January.
It did file a request to close 88 of its 5,900 locations. About 2,000 of the total are found inside Wal-Mart Stores Inc<WMT.N> sites. About 700 franchisees own 4,600 Jackson Hewitt franchise locations, according to McDermott.
New equity would be issued to the lenders, who would also get a new term loan of $100 million and a revolving credit agreement of $115 million, according to McDermott.
The company also plans to cancel its stock.
The court approved a series of routine "first day motions" that will allow the company to continue functioning while it works through its bankruptcy.
The case is In re: Jackson Hewitt Tax Service Inc, U.S. Bankruptcy Court, District of Delaware, No. 11-11587.
(Editing by Gerald E. McCormick)