Leslie's Files for Chapter 11; Existing Shareholders to Be Wiped Out

What happened

Leslie's, Inc. (Nasdaq: LESL) and nine of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the U.S. Bankruptcy Code on Sept. 30, 2026, in the U.S. Bankruptcy Court for the Southern District of Texas, according to a Form 8-K filed the same day. The company asked the court to administer the cases jointly.

Leslie's is a pool and spa care retailer. It sells chemicals, equipment, parts and supplies through its own stores and website, and it is the largest specialty retailer in that category in the U.S.

The filing is what the company calls a "pre-arranged" Chapter 11: before filing, Leslie's signed a restructuring support agreement, or RSA, with lenders holding about 81.1% of the principal amount outstanding under its prepetition term loan. Those lenders have agreed to vote for a plan of reorganization whose main terms are attached to the RSA as a term sheet.

The company also filed first-day motions asking the court for permission to keep operating normally: to pay wages and benefits, to honor tax, insurance and critical-vendor obligations, and to enter two new debtor-in-possession financing facilities.

Leslie's stock closed at $0.16 on the event date, down 26.61% from the prior close of $0.218, on volume of about 75.2 million shares against an average of about 1.87 million — roughly 40 times normal.

What the plan does to shareholders

Under the restructuring term sheet, all existing equity interests in Leslie's will be cancelled and holders will receive no consideration.

Ownership of the reorganized company goes to the lenders instead. Term loan lenders who participate will buy $60.0 million of new common equity in a private placement, representing 55.80% of all new common equity outstanding when the plan takes effect, before dilution from a management incentive plan.

Prepetition term loan lenders collectively receive another 10% of new common equity on a pro rata basis, also subject to MIP dilution. Lenders who elected to fund the new term loan facility will receive 30% of new common equity in the aggregate when the remaining balance of that facility converts, plus a separate $75 million portion that converts into an exit term loan rather than equity. General unsecured creditors receive a pro rata share of a cash pool.

The financing keeping the stores open

Leslie's is seeking court approval for two debtor-in-possession facilities. A DIP facility is new money lent to a bankrupt company after it files, with priority over most existing debts, so the business can keep paying suppliers and employees while it reorganizes. Court approval is required and, at the time of the filing, had not been obtained.

The asset-based revolving facility, or ABL DIP, totals $225.0 million in commitments and would be available in full once the court enters an interim order. An asset-based facility lets the company borrow against the value of collateral such as inventory and receivables, with the borrowing base recalculated as those assets change.

The term loan DIP is $90.0 million, with $45.0 million expected at the interim order and the remaining $45.0 million at a final order. The ABL DIP is expected to pay interest at SOFR plus 6.50% per year and the term loan DIP at SOFR plus 3.25% per year. SOFR is the secured overnight financing rate, a benchmark that floats with short-term market rates; the added percentage is the lender's spread. Both facilities mature six months from the petition date, subject to earlier maturity when the plan takes effect.

Term loan DIP lenders earn a commitment premium equal to 9.50% of the amount they actually fund, paid in the form of additional obligations under the same facility rather than cash.

The deadlines the company agreed to

The RSA sets milestones: an interim order approving the DIP facilities within 3 days of the petition date, a final order within 35 days, a plan and disclosure statement filed within 20 days, plan confirmation within 100 days, and the plan effective date within 110 days.

The lenders holding the required majority can terminate the RSA if any milestone is missed, if the court denies confirmation or converts the cases to Chapter 7 liquidation, if the company files pleadings inconsistent with the agreement, or if certain defaults occur. The company can terminate if a lender materially breaches or if its board determines continuing would conflict with its fiduciary duties. The agreement ends automatically once the plan takes effect.

Why this happened

The filing does not state a cause for the Chapter 11 cases. The 8-K describes the petitions, the RSA, the DIP facilities and the plan's treatment of creditors and shareholders, but it does not attribute the bankruptcy to any specific factor such as sales trends, debt levels or cost pressures. A separate first-day declaration by Chief Financial Officer Jeff White was filed with the court and referenced in the 8-K; that document would contain the company's account of the background.

What this means

A Form 8-K is the report a U.S. public company must file with the SEC when certain specified events occur between quarterly reports. The item numbers tell you what kind of event: 1.03 is bankruptcy or receivership, 1.01 is entry into a material agreement, 2.04 is an event that accelerates or increases a direct financial obligation, 2.05 covers exit or disposal costs, 2.06 covers material impairments, 3.01 covers a listing-rule failure or delisting notice, and 7.01 is a voluntary disclosure. Leslie's triggered all of them in one filing.

Chapter 11 is the part of the bankruptcy code used to reorganize a business rather than shut it down. The company keeps operating under court supervision while it negotiates a plan that says who gets paid and in what order. A "pre-arranged" case means the key creditors signed on to the shape of that plan before the petition was filed, which typically shortens the process.

The order of payment matters here. Secured lenders — the term loan and ABL lenders — have claims on specific collateral. General unsecured creditors share a cash pool. Shareholders sit at the bottom: because the lenders agreed to convert debt into nearly all of the new equity, and because the term sheet says existing equity is cancelled for no consideration, the common stock's claim on the business is extinguished by the plan. That is why the shares traded at 16 cents.

The market reaction measured by the price data is consistent with that structure: extremely heavy volume and a sharp drop as the equity's residual value was written toward zero.

The next steps are procedural and set by the milestones: the court rules on the interim DIP order, then the final order, then the company files the plan and disclosure statement, and creditors vote. In a pre-arranged case with lenders holding about 81.1% of the term loan already committed, the plan's approval process is designed to move on that timeline. If milestones slip or the court rules against the plan, the RSA allows the lenders to walk away, and the outcome of the cases would then be determined by the court rather than the agreement.