Jackson Hewitt sees pre-packaged bankruptcy as an option

Jackson Hewitt Tax Service Inc said it is working with its lenders on a restructuring plan that may include a pre-packaged bankruptcy, sending the second-biggest US tax preparer's shares down 42% to a life low.

The recent clampdown by the US government on refund anticipation loans (RALs), offered by tax preparers and funded by various banks, would take away debt-laden Jackson Hewitt's most profitable product, making it tougher for the company to reverse the loss of clients.

Banking regulators like the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency consider the loans - which are repaid by the borrowers' annual tax refund -- risky and have asked banks to stop funding them.

Republic Bancorp, which funds the loans for Jackson Hewitt, is suing the government, claiming FDIC hasn't developed a clear set of standards for these loans.

The bank wants the government to await the outcome of another proceeding evaluating the safety of its loans - that could come within the next three months.

A win for Republic Bancorp may be Jackson Hewitt's best bet.

Jackson Hewitt's credit agreements include covenants that require it to have full funding for its RAL program.

In December, the company got its lenders to waive the full funding covenant but with the very existence of the loans being threatened, further waivers seem unlikely.

In a regulatory filing, the company said it expects an agreement with its lenders on the restructuring by April 29.

Jackson Hewitt, which had USD 362.3 million in outstanding debt under the credit agreement as on January 31, has to pay about USD 25 million by July 15 besides mandatory payments of USD 30 million on April 30 and the remaining balance on maturity on October 6.

But the company is left with less than USD 5 million in cash and cash equivalents, according to a regulatory filing.

Traditional tax preparers such as H&R Block Inc and Jackson Hewit have also been losing market share to Intuit Inc's TurboTax, as more people move to "do-it-yourself" models.

Jackson Hewitt, which appointed a new chief executive in January, posted a third-quarter net income of USD 5.4 million, or 19 cents a share, compared with a loss of USD 279 million, or USD 9.75 a share, a year ago.

Revenue rose 4 percent to USD 82.5 million.

Shares of the Parsippany, New Jersey-based company fell 42% to 73 cents on Thursday on the New York Stock Exchange.

Larger rival H&R Block shares climbed 8% on Thursday, a day after it posted strong quarterly earnings and said it expected regulations to drive consolidation in the industry.

Last year, Jackson Hewitt's listing on the New York Stock Exchange hit a hiccup as its market capitalization dropped below USD 50 million.

However, in January, it met the requirements to restore compliance with the USD 1.00 minimum share price requirement for the New York Stock Exchange's continued listing standards.