On March 13, 15 months after it filed for Chapter 11 protection, the Great Atlantic & Pacific Tea Company has emerged from bankruptcy as a privately held firm. U.S. Bankruptcy Court Judge Robert D. Drain, who late last month sanctioned the chain’s reorganization plan, also approved A&P’s official exit from Chapter 11.
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 inWhite Plains,NY.
On February 28, Judge Drain approved a $490 financing pact withYucaipaas 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.
“In just over one year, we have completed a thorough restructuring of A&P’s cost structure and balance sheet to build a strong foundation for the company’s future,” Sam Martin, A&P’s president and chief executive officer, who will remain in those posts with the new organization. “With the full support of our financial partners, the new A&P is committed to delivering exceptional value and an enhanced in-store experience to all of our customers across our more than 300 neighborhood food and drug stores.
A&P also noted that as part of the restructuring process, the company assembled a new management team with experienced executives who are proven experts in their respective areas. The retailer also said it has adjusted its store footprint around its core markets, negotiated a new supply and logistics agreement with its principal supplier, C&S Wholesale Grocers, Inc., and worked with the local unions representing A&P’s associates to modify their collective bargaining agreements. A&P also refurbished stores, eliminated closed store leases, and opened a brand new Super Fresh store inPhiladelphia’s Northern Liberties neighborhood.
The post-bankruptcy structure did not allocate 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 last month.
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 toYucaipa’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.
Martin’s new deal as CEO includes $1.2 million annually in salary and an additional $720,000 signing bonus to be paid by the new owners. He 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 also stay on with the new entity and are also eligible for the same long-term and short-term incentives as Martin.
However, Frederick “Jake” Brace, A&P’s chief financial officer and chief restructuring officer, who helped the company maneuver through bankruptcy, will not be part of the new team. Instead, A&P announced the promotion of Raymond P. Silcock to the role of CFO. Silcock joined A&P in December 2011 as head of finance. Prior to joining A&P, he was executive-in-residence at Palm Ventures LLC, a private equity firm. Over the previous 15 years, he served as chief financial officer of a number of public and privately held companies in the food and beverage industry, including UST Inc., Swift & Co. and Cott Corporation. Silcock began his career at Campbell Soup Company, where he served in a variety of financial roles of increasing responsibility over his 18-year tenure.
Martin will also serve as one of seven members of the board of directors for the new company. Yucaipa,MountKellettand Goldman Sachs will control five board seats, while the UFCW was granted one appointee.
That board member will be Lou Giraurdo, a partner in theSan Franciscolaw 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 320 stores under the A&P, Pathmark, Food Emporium, Waldbaum’s Food Basics, Super Fresh and Best Cellars banners.
“We greatly appreciate the support of our associates, vendors, unions and community leaders throughout the restructuring process, and we especially thank our customers for their loyalty and commitment to shopping at our stores. Going forward, we remain committed to investing in our stores and providing our customers with new products that match their health and wellness needs and reflect the diversity of the neighborhoods we serve,” Martin said.