Leslie's files Chapter 11 to cut $685 million of debt; lenders take control and 76 more stores close

Leslie's, the pool and spa supply retailer, filed for prearranged Chapter 11 protection on Wednesday in the U.S. Bankruptcy Court for the Southern District of Texas, with the support of more than 80% of its existing lenders, the company said in a press release. The plan would cut about $685 million, or 90%, of its funded debt, and the company expects to leave bankruptcy in early 2027 majority-owned by a group of those lenders. Bloomberg reported the filing this morning. The case is number 26-90795 before Judge Alfredo R. Perez, according to the court docket.

Leslie's shares traded at about $0.18 at 10:52 a.m. Eastern, down 18% on the day, according to Nasdaq, on volume of roughly 24.5 million shares against a 1.8 million daily average. The 52-week high is $12.53.

What the deal does

• Debt: Leslie's carried $786.7 million of long-term debt on July 4, a $756.7 million term loan due March 2028 and $30 million drawn on its revolver, according to its latest 10-Q. That term loan is the debt the lenders are swapping for ownership.
• New money: $150 million of new capital, made up of $90 million of debtor-in-possession financing from existing lenders and a $60 million equity raise backstopped by lenders in the restructuring deal. A separate $225 million DIP asset-based facility comes from its existing ABL lenders.
• Stores: 76 more closures. Leslie's had 943 locations in 38 states on July 4, after a plan last November to close 80 stores, so the remaining footprint would be roughly 867 locations if no others closed in between.
• Shareholders: the release and the company's FAQ do not say what common shareholders receive. With lenders taking majority ownership, investors should read the plan documents before assuming the shares carry value.

Why a profitable quarter did not save it

The quarter to July 4, the peak of pool season, was profitable: net income of $47.8 million on sales of $458.5 million, according to the earnings release. But sales fell 8.4%, comparable sales fell 6.2%, and the company had lost $87.7 million over nine months. Pool supply is seasonal, and summer earnings have to carry a business through the winter. With cash of $45.9 million and a term loan due in 2028, Leslie's warned in August of "substantial doubt" about its ability to continue as a going concern. The real problem was the size of the debt, not one bad season.

Who it hits: the pool service pro

Leslie's sells to homeowners, but also to professional pool operators, from hotel and apartment owners down to sole proprietors, through a PRO loyalty program and a dedicated PRO web store, according to its annual report. For a one-truck pool service company that buys chlorine and parts at the local Leslie's, the practical questions are supply and terms.

The company's restructuring page says it is "business as usual" for commercial customers: orders are being fulfilled, the PRO Portal is running, and "PRO customers' pricing and account terms remain in effect." Gift cards and loyalty benefits will be honored. The limits are worth noting. That is a statement about today, and a lender-owned company that is closing stores will review which locations and accounts are worth keeping. A pro whose nearest store is on the closing list will need a second supplier before next spring. Vendors will be paid for goods delivered on or after September 30; what happens to older invoices is for the court to decide.

The company has not disclosed how much of its sales come from professional customers, and has not yet published the list of the 76 stores.

Sources: Leslie's press release; Leslie's restructuring FAQ; CourtListener docket; Leslie's 10-Q, Q3 results and 10-K; Nasdaq; Bloomberg. The post-closure store count is our calculation. This is market information, not investment advice.