Prior to the first of several auctions slated for later this month, U.S. Bankruptcy Judge Robert Drain ruled on September 1 to allow A&P to restrict seniority bumping rights at 25 stores scheduled to close by mid-October and called for increased severance pay for workers at those stores. A&P’s lenders – secured creditors and debtor-in-possession lenders – must approve the increased severance payout.
The 25 stores will be represent first round of closings and potential sell-offs for the 156-year old grocery chain which filed for Chapter 11 bankruptcy in July, its second bankruptcy in five years.
Drain recommended that A&P pay laid-off workers at those soon-to-be-closed units 52 percent of their owed severance and up to 10 percent more if funds allow after bankruptcy. A&P originally proposed paying 25 percent.
In addition to the 25 units that will be closed, A&P has filed WARN (Worker Adjustment and Retraining Notification) notices stating it plans to lay off approximately 9,500 associates in New Jersey alone, affecting 93 stores in the Garden State. And last month A&P confirmed that it will sell or close all of its remaining 296 stores.
In his ruling, Judge Drain said he understood the frustration of the A&P associates (and their local labor unions) who feel the beleaguered retailer isn’t abiding by its contractual promises, but added that “bankruptcy as a whole is about broken promises.”
At the same time, A&P has asked the court to reserve $5 million for executive retention bonuses. Judge Drain has scheduled a September 11 hearing on that matter. The request for retention bonuses brought a quick and direct response from several local labor union executives.
“We are disgusted that A&P finds it acceptable to pay their executives a retention bonus,” wrote John Durso, president of UFCW Local 338 (Mineola, NY) in a memo to his members, “while trying to deprive you of the full severance package that you have earned and are contractually entitled to.”
John Niccollai, president of UFCW Local 464A based in Little Falls, NJ told NorthJersey.com, “I don’t see any purpose in rewarding the same people who drove this company into bankruptcy.”
The hearing before Drain on September 1 covered only workers at the 25 stores A&P has decided to close in the next six weeks. However, an attorney for the Montvale, NJ retailer said it plans to make a broader request shortly for the bankruptcy court to override its union contracts to facilitate sales of stores.
A&P had asked the bankruptcy court to set aside certain severance pay requirements and bumping rights that allow union members with seniority to replace lower-paid workers, saying those provisions could hinder the sale of its stores. The unions argued that the company is breaking a promise made the last time it filed for bankruptcy.
The Tea Company’s bankruptcy filing 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.
At the time of the filing, A&P announced that it had received “stalking horse” bids for 118 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. 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.
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 needed to receive court approval of bid procedures within 45 days of filing its bankruptcy. A judge must sign off on sale transactions with a minimum value of $275 million by October 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 last month, 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.”
It seems likely that union jobs will be protected (in some form) for the 118 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 individual stores. However, there are no such assurances for the remaining 178 stores (including the 25 stores that A&P said it will close). UFCW attorneys told the bankruptcy court that after 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 contracts 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.”
Judge Drain seemed to at least partially consider those concerns in his recommendation.
A&P 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.
After A&P filed for bankruptcy in 2010, the United Food and Commercial Workers Union, which represents some 26,000 A&P store employees, agreed to wage and benefit concessions worth more than $625 million over five years. In return, A&P, according to court documents, 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.
A&P claims in its motion that essential non-union employees are “resigning at an escalating rate,” and that it has lost 54 top-level employees since its July 19 bankruptcy filing, including its chief operating officer and the director of deli and bakery.
As for its executive retention request, A&P plans to give executives and managers payments ranging from $125,000 to a few thousand dollars, with the average payment being $10,000. A&P did not identify which employees would receive payments. The company, officially the Great Atlantic and Pacific Tea Co. Inc., said it decided not to include union workers in the request for retention pay because it expects they will continue to have jobs if stores are sold to other supermarket operators, unlike executives and non-union workers, who most likely will no longer have jobs when the bankruptcy process ends.
A&P filed a report by consulting firm FTI Consulting in support of the pay motion. FTI said the payments would go to 83 corporate employees and 412 field employees, such as store managers. There would be two pay periods, one ending Oct. 10, and the second for employees retained through December 12.
FTI prepared a chart showing that employee retention plans have been used in other recent bankruptcies, including those involving Borders bookstores and Hostess Brands. The amount requested for the A&P plan, $5 million, is higher than 10 of the 11 examples cited by FTI.
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. Below are key dates (which are subject to change) concerning the disposition of A&P’s stores:
- September 11– All qualifying bids on the stores are due into the Bankruptcy Court
- September 21 – The Bankruptcy Court will announce what Tier One stores have agreements to be sold and what stores will be sold at the auction on September 23 or 24
- September 24-25: Auction will continue for remaining unsold stores
- October 2 – Bidders and labor unions can file objections to the sale of stores in the Bankruptcy Court
- October 7 – A hearing will be held concerning the objections to the sales filed to the Bankruptcy Court
- October 15 – The winning bids of the stores will be officially announced