ArticleJOANN continued operations after filing for bankruptcy in January 2025–without material reduction in store count–with the hope of selling its assets as a going concern. As the sale process progressed, however, it became clear that the Company needed to close more than half of its stores nationwide. In another turn of events, it was just announced that JOANN will shutter all of its stores.
Following the bankruptcy auction, GA Group together with the debtors’ prepetition term loan agent, was selected as having the winning bid to acquire substantially all of JOANN’s assets. Subject to Bankruptcy Court approval of the transaction (the hearing on which is scheduled for February 26th), the winning bidder plans to wind-down the Company’s operations and conduct going-out-of-business sales at all store locations.
This latest development does not necessarily mean that landlords will retake possession of the leased premises. Among the assets purchased by the winning bidder are lease designation rights. As described by one bankruptcy court, designation rights are “the right to direct the debtors to assume and assign unexpired leases…to third parties qualifying under the Bankruptcy Code, after such non-end users locate ultimate purchasers of the unexpired leases.” [1] In other words, the holder of lease designation rights can itself market a lease and direct the debtors to assume and assign it to a party of its choosing subject to the requirements of Section 365 of the Bankruptcy Code (which imposes a number of requirements for lessor protection, particularly if the lease in question is with respect to premises in a shopping center). The sale of designation rights is an important avenue available to debtors to maximize the value of their lease portfolio.
Here, the winning bidder has the exclusive right, through May 31, 2025 (which date may be extended), to designate the purchasers, assignees, sublessees, or other transferees of JOANN’s rights in and to any or all of its real property leases upon the terms and conditions agreed upon between the winning bidder and such designee. Thus, landlords must continue to follow the case to ensure the winning bidder’s designation rights do not infringe on the rights afforded to landlords under the Bankruptcy Code.
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[1] In re Ames Department Stores, Inc., 287 B.R. 112, 114 fn.2 (Bankr. S.D.N.Y. 2002) (citation omitted).