Jackson Hewitt Enters Bankruptcy

Jackson Hewitt declared bankruptcy today, ending a period when such a plan had been expected but still not realized. The plan, characterized as “pre-packaged,” will address their huge liabilities.

Jackson Hewitt finished the tax year with $12 million in cash, but $95 million in current liabilities. They had other current assets, although those included outstanding debts held against their franchisees. The trigger event were payments due on an outstanding line of credit with Wells Fargo. In all, they listed $389 million in assets (some of which were goodwill) and $445 million in liabilities.

Jackson Hewitt made the announcement about two hours ago.

The plan means that Jackson Hewitt should survive to prepare more tax returns in 2012. It is good news for their employees.

The company has been struggling to service all of those debts, even as they have managed to generate some cash flow from operations. The new plan shrinks their debt fourfold and probably comes with sub-10 percent interest payments. One commenter says that this will drop their annual debt service to just $8 million.

It is also good news for the executives that have been running Jackson Hewitt. They will keep their jobs.

“Our only regret is that there is insufficient value for our equity holders and unsecured creditors to share,” said Jackson Hewitt CEO Philip Sanford.

The news is not so good for their shareholders. In an earlier filing, the company said that it did not contemplate a scenario where existing shares would retain any value. Oddly, the shares continued to have some value even then. They were selling for twenty cents in recent trading on the pink sheets. Today, that promise is extinguished. The plan calls for new shares to be issued. They will held privately. Current lenders with secured positions will be given equity. Jackson Hewitt gets another $100 million in new debt.

Don’t feel too bad for those shareholders. Seriously. They had more than enough of a warning to get out while there was still some value left. Most of the “equity” in the old company consisted of goodwill – an assumption that seemed like a textbook lesson for accounting majors.  Debt holders have some soul searching to do, as well. Wells Fargo had a very high interest rate on their line of credit. The exact rate is hard to know because it was capable of resetting, and it was floating above LIBOR, but the number was north of 12 percent. Now they are going to restructure that debt at a much lower rate, and with most of the principal forgiven. It seems like they could have done better for themselves by lowering the interest rate before it came to a bankruptcy.

UPDATE: There are rumors circulating that the new Jackson Hewitt model will change from stores, often located in strip malls, to kiosks.