Despite objections from bondholders who questioned the role of Yucaipa Cos. in A&P’s bankruptcy proceedings, U.S. Bankruptcy Judge Robert Drain approved the $800 million loan the bankrupt retailer sought for post-petition financing. The bondholders were concerned that approval of the debtor-in possession (DIP) financing would place them further back in line to be repaid. The hearing was held on January 10 in White Plains, NY.
“I think that’s a fair resolution” Drain said. “It doesn’t resolve issues about the intercreditor agreement. Any issues under that are for another day.”
Edward S. Weisfelner, an attorney for the bondholders, said Yucaipa, one of A&P’s largest shareholders, is rumored to also own large part of second lien bonds, and have a large stake in the DIP loan. He is also quoted as stating, “We think they’re (Yucaipa) all over the capital structure. The debtor told us to talk to Yucaipa, and Yucaipa told us to ‘talk to the wall.’”
According to court papers, Ron Burkle’s Yucaipa Cos. owns all of A&P’s series A-Y preferred stock. A&P’s second-largest stockholder is Aletheia Research & Management. Holding more than five percent of its voting securities are GAMCO Investors, Bank of America Corp., DBD Cayman Islands and Yucaipa.
JPMorgan Chase & Co., the lead arranger of the loan, also has a stake in A&P’s pre-bankruptcy debt and fully underwrote the loan, with permission to syndicate it, court documents revealed.
Drain had initially approved the loan on an interim basis which let A&P draw $187 million from a $350 million term loan and gives it $200 million in credit from a $450 million revolving credit facility. While Drain approved the full DIP financing, it extended from 60 to 90 days the ability of unsecured creditors to investigate pre-bankruptcy agreements.
Landlords also objected to the new loan, noting that it would give lenders a lien on A&P’s (and its subsidiaries) leases, violating terms of the leases which prohibit them from being transferred. Under the loan agreement, if A&P defaults on its DIP loan, the lenders can occupy the premises, attorneys for a number of landlords petitioned. Drain ultimately approved A&P’s original motion to reject some of its leases (including most of its now closed Farmer Jack stores in Michigan).
The final order also approves some $15 million in carve-out allocations for payment of professional fees and legal expenses.
Judge Drain did not rule on A&P’s request for a 35 day extension (from January 11 to February 15) in which to submit its full schedules of assets and liabilities and statements of financial affairs to the court. A&P previously told the court that it requested the extension “because the nature and scope of its operations require it to maintain voluminous records and intricate accounting systems” coupled with the reality that certain pre-petition invoices have not yet been received or entered into its accounting systems.
In A&P news related to its supply chain, a C&S Wholesale Grocers subsidiary, Woodbridge Logistics, late last month filed a notice with the New Jersey Labor Department that it could lay off as many as of 1,114 associates who are employed at six Garden State distribution centers that the Keene, NH wholesaler utilizes to supply A&P stores, effective February 6, a day after its seven year contract with Teamster Local 863 expires. The layoffs would take place at all at depots in New Brunswick, North Brunswick, Dayton and three locations in Woodbridge.
C&S (Woodbridge Logistics) is reportedly seeking substantial savings in its negotiations, both in wages and benefits. The large, privately-held wholesaler is also undoubtedly protecting itself against the declining A&P sales and whatever other losses may occur as the Tea Company begins the long and complex task of reorganization.
When it sought Chapter 11 status on December 12, A&P partially attributed its bankruptcy filing to an inability to renegotiate terms of its contract with C&S, its primary supplier. Although C&S did not appear in the initial filing of largest unsecured creditors, an amended filing stated that the wholesaler was owed $10.7 million by A&P. The retailer reportedly receives about 70 percent of its goods from C&S or its subsidiaries.
And according to published reports, A&P informed the court that vendors with long term contracts are not part of the debtors’ proposed (reorganization) program, adding that it will enforce its rights in court if such vendors use the Chapter 11 filings or the debtor’s financial condition as an excuse to suspend shipments, modify payment terms or otherwise impair its rights.
A&P also announced that executive chairman that Christian Haub will no longer serve the company in an executive capacity. He will remain as chairman of the board. The removal of Haub from the Tea Company’s day-to-day business completes one of the worst individual legacies of failure in supermarket history. Haub, whose family business, The Tengelmann Group, has controlled A&P since 1978, joined the Tea Company in 1991 and has been president, co-CEO, chief executive or executive chairman since 1992.