U.S. Bankruptcy Court Judge Robert D. Drain has approved A&P’s plan to exit bankruptcy. Drain’s ruling came three weeks after A&P presented its reorganization plan to the court. The court’s approval will now allow Yucaipa Cos. principal Ron Burkle to head the beleaguered supermarket chain as a private entity firm (Mount Kellett Capital Management and Goldman Sachs also have equity in the newly reorganized merchant). Judge Drain made his ruling in U.S. District Bankruptcy Court on February 27 in White Plains, NY.
Last month, Judge Drain approved a $490 financing pact with Yucaipa as the best and only offer to prevent the 152 year old chain from liquidation. Additionally, J.P. Morgan and Credit Suisse Group AG agreed to loan the new firm $645 million.
A&P’s exit from bankruptcy could officially occur during the first 15 days of March. However, a group representing A&P’s pension recipients said it wants Drain to hold off from sanctioning the final plan until March 30, as it appeals its request for greater benefits.
That, however, seems unlikely since a $40 million request to pay unsecured creditors is not part of the final reorganization plan. However, published reports indicate that those creditors could be repaid if the company is acquired within five years for a large enough sum. However, at this point in time, those creditors will receive nothing.
“It’s an irrefutable fact that the debtors could not raise enough money to have the extra $40 million,” Drain said in court.
Under A&P’s reorganization plan, existing equity interests in the company would be eliminated and shareholders wouldn’t receive any payment under the plan. In addition to Yucaipa’s $490 million debt and equity commitment, Burkle would serve as chairman of the reorganized A&P.
Another key component of the plan allows the grocery chain to keep in place the 34 collective bargaining agreements it negotiated with the United Food and Commercial Workers International Union and other locals in November. Those pacts involved significant compensation and benefit concessions by A&P’s clerks and meatcutters. Even in affirming the bankruptcy plan, Drain said the unions accepted concessions only because of the “dire alternatives” they would have otherwise faced.
“This is a very painful deal, obviously,” Drain said, referring to the union concessions. “I have no doubt of that, looking at the various agreements.”
Since it filed for bankruptcy protection December 12, 2010, the Montvale, NJ, company has closed or sold about 75 stores and reduced its labor force by approximately 5,000. At the time of its filing, A&P had employed approximately 40,000 associates.
Also revealed in court documents relating to the Tea Company’s exit from bankruptcy is the retailer’s management team going forward.
Current chief executive Sam Martin will remain at his post following A&P’s bankruptcy exit. He will be paid $1.2 million annually and receive a $720,000 signing bonus to be paid by the new owners. Martin will also participate in a long-term incentive plan that could potentially earn him a share of up to 7.5 percent of the equity in the new company, as well as a short-term bonus plan.
Current senior executives Thomas O’Boyle (EVP-chief merchandising officer), Paul Hertz (EVP-chief operating officer), Christopher McGarry (EVP-chief legal officer) and Carter Knox (EVP-chief human resources officer) will stay on with the new entity and are also eligible for the same long-term and short-term incentives as Martin.
The status of Jake Brace, A&P’s current chief financial officer and its chief restructuring officer, remains subject to continuing negotiations, sources noted.
Sam Martin will also serve as one of seven members of the board of directors for the new company. Yucaipa, Mount Kellett and Goldman Sachs will control five board seats, while the UFCW was granted one appointee.
That board member will be Lou Giraurdo, a partner in the San Francisco law firm of Coblentz, Patch, Duffy & Bass. Giraurdo also represents food and financial services firms in acquisitions and refinancings. He is a co-founder and partner in GESD Capital Partners (a private equity firm with investments in several food and wine companies), a former CEO of Pacific Coast Baking Co. and a former chairman of Pabst Brewing.
A&P, still unprofitable during its 15 month bankruptcy period, had an estimated $6.7 billion in sales for the fiscal year that ended February 25, as it operated 336 stores under the A&P, Pathmark, Food Emporium, Waldbaum’s Food Basics, Super Fresh and Best Cellars banners.