Creditors and labor unions and creditors are objecting to A&P’s bankruptcy plan, causing the once iconic chain’s Chapter 11 plan to hit a bump as we went to press on August 14.
The Tea Company’s second bankruptcy filing in five years potentially affects all of the company’s nearly 27,000 United Food and Commercial Workers (UFCW – clerks and meatcutters).
To reset the clock on A&P’s second bankruptcy filing in five years, let’s start in the late hours of July 19 when A&P filed its petition.
Anticipation had been growing since early June that the food retailer, founded in 1859 by George Hartford, was bleeding cash and facing increasing pressure from its key suppliers, which had either demanded tighter credit terms or refused to service the company at all.
According to the bankruptcy petition, A&P listed assets and debt of more than $1 billion each. Its largest unsecured creditor listed was C&S Wholesale Grocers with a claim of $39.4 million.
At the time of the filing, made in the Southern District Court of New York in White Plains, A&P operated 296 stores under six banners – A&P, Food Basics, Food Emporium, Pathmark, Super Fresh and Waldbaums. U.S. Bankruptcy Court Judge Robert Drain, the jurist who presided over A&P initial Chapter 11 filing from December 2010 to February 2012, will also oversee this new filing.
At the time of the filing, A&P announced that it received “stalking horse” bids for 120 of its units from three parties – Cerberus/Albertsons (Acme), $256 million for 76 stores; Ahold USA (Stop & Shop), $146 million for 25 stores; and Key Food Stores, $28 million for 19 stores. Additionally, A&P said it would shortly close an additional 25 stores (store dispositions/sales are broken out at the end of this story). All potential deals are subject to FTC approval.
The acquisition offers are subject to customary legal and bankruptcy court approvals, including the potential for higher bids to be submitted and anti-trust approval. A&P has asked the court for an order requiring other bidders to submit their bids by September 11, 2015, with an expectation that court approval for the sale of the stores would be received by October 15, 2015. If other bids are received, the company is requesting one or more auctions to be held on September 24 and 25 with a sale hearing on October 1.
Fortress Credit Corp. will be the agent for a $100 million loan backed by the 156-year-old grocer’s assets to fund its restructuring, A&P said. A bankruptcy court judge in White Plains, gave the company permission to use as much as half of that financing on a provisional basis.
Under the terms of the new financing, the company must receive court approval of bid procedures within 45 days of filings its bankruptcy. A judge must sign off on sale transactions with a minimum value of $275 million by Oct. 15.
In its filing, A&P stated it was impaired by a “significant cash burn” of an average of $14.5 million a month at the start of fiscal 2015. That rate is expected to accelerate after the bankruptcy filing, according to court papers.
A&P has two loans totaling $270 million, according to trade reports. The loans, along with a $300 million revolving line of credit, mature in September 2019.
In addition to the senior loans, the company took on $420 million in junior-ranking debt as part of its exit from bankruptcy in 2012, according to court documents. At the time it had lost around $123 million on sales of almost $1.6 billion in its latest quarter, according to a regulatory filing.
In the weeks following the Chapter 11 process, both creditors and labor unions are still seeking more substantial information.
According to Dow Jones, creditors of Great Atlantic & Pacific Tea Co . have filed a motion with the bankruptcy court, noting that the beleaguered retailer’s $100 million bankruptcy loan doesn’t provide enough liquidity for the company’s estate and renders it “administratively insolvent.” In the filing, made on August 7, A&P’s official committee of unsecured creditors also said the loan being provided by an affiliate of Fortress Investment Group LLC is nothing more than the foundation of a “scheme” by lenders and A&P to “effectuate a controlled liquidation for the benefit of secured creditors.”
On the labor front, the UFCW is reportedly prepared to reactivate a coalition of 12 local unions (first formed in 2010 and disbanded after A&P emerged from its first bankruptcy in 2012) to seek greater leverage in negotiating contract protection as the stores are ultimately closed or sold. A&P currently has 35 contracts with its labor unions.
It seems likely that union jobs will be protected (in some form) for the 120 stores that Acme (Cerberus), Stop & Shop (Ahold USA) and Key Food have agreed to acquire with their “stalking horse” bids, which would be good news for about 12,500 UFCW members who are employed at those supermarkets.
However, there are no such union job assurances for the remaining 176 stores (including the 25 stores that A&P said it will close). UFCW attorneys told the bankruptcy court that after the The Tea Company emerged from its original Chapter 11 in 2012 and UFCW members agreed to substantial wage and benefit reductions ($600 million over five years), A&P in turn agreed to a clause in the union contract that said the company would require any future buyer to assume the labor contract and hire substantially all employees.
The UFCW, in court documents, noted that it is “deeply concerned” that A&P will ask the court to reject its union contracts, and to ignore the deal reached as A&P emerged from the previous bankruptcy, “and thereby eliminate the benefit of the bargain from the prior bankruptcy proceeding, causing incredible human distress and dislocation.”
A&P, has told the bankruptcy court that other potential bidders claimed they are interested in acquiring stores only if they are sold free and clear of any contractual obligations to union workers.
To further support A&P rights, Christopher McGarry, chief administrative officer (CAO) for the Montvale, NJ based operator, in a statement filed with the court on July 20, warned the unions. “It is imperative that the parties cooperate with one another and that negotiations be conducted as expeditiously as possible. While the debtors are committed to pursuing consensual resolutions with their unions where possible, if consensual resolutions cannot be quickly achieved within the required deadlines imposed, the debtors will be required to commence proceedings under sections 1113 and 1114 of the Bankruptcy Code to seek authority to implement both temporary and permanent modifications to the CBAs (collective bargaining agreements) on a unilateral basis.”
Section 1113 is the section of the bankruptcy code that is often used to cancel or modify labor pacts, even without any reciprocal agreement from unions or union members. However, A&P must first try to reach an agreement with the unions before asking the court to reject a contract.
According to UFCW Local 1500, the largest local labor union representing about 5,000 A&P associates, the retailer is specifically seeking to displace workers with seniority (elimination of bumping rights); limit the union’s right to strike; allow non-union workers to come into its organized stores and do “our” jobs; and reduce or eliminate severance pay. Negotiations were continuing as we went to press.
“Each one of these issues was discussed with urgency on Wednesday (August 5) and we collectively conveyed this message to A&P: our members have already sacrificed more than enough. These proposals are very sensitive, they stand to affect thousands of families throughout the Northeast,” the Westbury, NY-based union’s website stated.
In a letter published in In These Times, 14 year veteran clerk Linda Maloney, who works at a Wilmington, DE Pathmark, clearly expressed her concerns and frustrations when she wrote a letter to Bankruptcy Judge Drain: “I am writing you today so you are aware that normal working people are affected in the Bankruptcy of A&P. In the last Bankruptcy, we, Local 27 UFCW, gave up 7.5 percent of our pay, gave back a week’s vacation, two personnel days, and gave back two holidays in good faith to make this company stronger. But the executives either not knowing how or not caring to learn how to run a grocery store kept giving themselves bonuses. For their last, the executives, gave themselves a mega bonus, then days later filed for bankruptcy. This is leaving us, the workers, struggling, with no income or benefits. How is this legal? I am sure that the executives of A&P are sitting pretty and not caring at all about us. I guess I hope that you will think of us, the workers, who are most affected by this action. Most of us have worked most if not all of our lives for Pathmark.”
According to the publication, Maloney said she didn’t get a response from Judge Drain, nor did she expect one. The managers, she said, didn’t seem to know what they were doing and “it seemed like they wanted us to fail.”
The letter, she noted, was inspired when she showed up for work on July 20 to learn that A&P had filed for bankruptcy that day, and that the store would be closed in 90 days. No other information was forthcoming from the store managers, she declared.
