Wells Fargo: National Tax Preparer

With the latest round of re-organization at Jackson Hewitt, Wells Fargo seems destined to run the nation’s second largest tax preparation chain in the country.

When Wells purchased Wachovia, it inherited a position as the lead lender to Jackson Hewitt Tax Services. Wachovia originally offered Jackson Hewitt a line of credit for more than $100 million back in 2006. The line of credit agreement has been amended many times since then.

Jackson Hewitt filed its new reorganization plan in mid-May 2011. Recently the company released the terms of the agreement in an 8-k. The filing details the order confirmed by the bankruptcy court.

The agreement wipes out all claims for all the existing shareholders. Those shares are null, void, and not worth the ink or electronic 1s and 0s upon which they were printed.

Jackson Hewitt gets a new $100 million credit facility.

The “Lenders” were issued all of the new shares in the company. The lenders – principally Wells – will have 100 percent of the equity in the company. The agreement sets out a cap for stock awards going into the future as well. Management is prohibited from allowing options and share awards to exceed more than 10 percent of the outstanding shares.

Last, Jackson Hewitt has to leave $1.1 million in cash into a special account. The “cash collateral account” gives Wells a right to tap the funds. It is also meant to serve as a pool for settling grievances for any subsequent lawsuits against Jackson Hewitt.

I imagine that Wells will not make much of their participation in strip mall tax prep shops. They are probably going to be silent owners.

Jackson Hewitt, in turn, can probably use the ignominy of the situation to their favor. Realistically, Wells has a lot more to lose than to it has to gain. Wells will probably continue to renegotiate credit agreements regardless of the company’s performance. They really have no other hope for getting any of their money back out of the deal. It is also true that any article detailing how Wells is putting the clamp onto Jackson Hewitt is probably more damaging than any of the potential upside. Jackson Hewitt employs a fairly large number of people around tax time.