America’s oldest supermarket chain has been felled. After 151 years of operation, A&P filed for Chapter 11 bankruptcy protection on December 12. And although it intends to restructure, the future of one of the iconic names in American retailing is very much in question.
The Montvale, NJ grocer listed total debts of more than $3.2 billion and assets of about $2.5 billion. The chain has secured $800 million in debtor-in-possession (DIP) financing from J.P. Morgan & Chase Company. Judge Robert D. Drain of U.S. Bankruptcy Court in White Plains, NY ruled December 13 that A&P can tap nearly $400 million of that financing to keep operating while in Chapter 11 protection, allowing it to continue paying employees and vendors.
Part of the financing is set aside for creditors, a condition set by J.P. Morgan. If Drain gives final approval of the DIP loan at a later hearing, A&P will gain access to the remaining $450 million revolving credit. The DIP protection has an 18-month maturity.
According to the filing, A&P listed the material shareholders of the corporation; they are: the Haub family (father Erivan Karl and sons Christian and Karl-Erivan) and Tenglemann – 43 percent; Alethia Research & Management – 27 percent; GAMCO Investors, Inc. – nine percent; Bank of America Corporation – eight percent; DBD Cayman, Limited – five percent; and the Yucaipa Companies LLC – four percent. (Yucaipa and the Haub/Tenglemann coalition also control a substantial amount of preferred stock and bonds.)
The creditors committee has not yet released the full list of unsecured creditors. However, in the initial filing, Wilmington Trust Company is by far the largest, with approximately $606.4 million in claims. Among the top 10 of the 40 listed claimants are food and drug suppliers such as: McKesson Drug Co. – $15.1 million; Haddon House – $10.6 million; Coca-Cola Enterprises – $7.1 million; Frito-Lay Inc. – $4.5 million; Nabisco – $3.98 million; Pepsi-Cola (Hasbrouck Heights); Nestle DSD Company Ice Cream – $2.2 million; Entenmann’s Bakery – $2.2 million; and Pepsi-Cola Bottling Company of New York Inc. – $1.7 million.
The once storied Great Atlantic & Pacific Tea Company, which operated nearly 16,000 stores at its peak in the 1930s, has been struggling for years. In its most recent quarter, ended September 11, the retailer reported a $153.7 million loss. Today, the retailer operates fewer than 400 stores on the East Coast.
In 2007, A&P paid $1.4 billion for the 141 store Pathmark chain, a move many point to as the beginning of the company’s problems as the retailer took on $475 million in debt in the deal. That debt, along with increasing competition from supermarket operators as well as alternate channel retailers such as Wal-Mart and Target, led to quarter after quarter of declining sales and earnings.
In July 2009, investor Ron Burkle’s Yucaipa Cos. invested $115 million in A&P in exchange for a 27.6 percent ownership stake and two board seats in addition to the one he already had as a result of his stake in Pathmark.
The Montvale, NJ based grocer announced a turnaround plan in July that included closing 25 stores in five states. It also hired Sam Martin as its second new chief executive officer this year, replacing Ron Marshall, who had held the job since February.
According to published reports, A&P was not able to negotiate concessions from C&S Wholesale Grocers, its primary supplier, leading the chain to seek bankruptcy protection. The chain also had about $13 million in interest payments on unsecured notes due December 15.
In a statement, Martin said “We have taken this difficult but necessary step to enable A&P to fully implement our comprehensive financial and operating restructuring. While we have made substantial progress on the operational and merchandising aspects of our turnaround plan, we concluded that we could not complete our turnaround without availing ourselves of Chapter 11.”
In fiscal 2008, A&P’s adjusted EBITDA was $333 million; for the 12 month period ended September 12, that figured had dipped to $104 million, a 69 percent decline. The retailer’s revenue over that period fell from $9.5 billion to $8.4 billion.
Currently, A&P has 73 “dark store” leases, stores that it has shuttered after being unable to sublease them. In the bankruptcy filing, A&P is seeking to dump those stores, which have a projected net rental for 2011 of $77 million.
Jake Brace, a onetime executive at United Airlines’ parent, will lead the reorganization effort as A&P’s chief restructuring officer, the company said. A&P is being advised on the restructuring by Lazard and law firm Kirkland & Ellis.