Published on: December 13, 2010The Great Atlantic & Pacific Tea Co. (A&P) filed for bankruptcy protection on Sunday, unable to cope with debt, facing declining sales and profits showing no sign of a turnaround, still adjusting to a game of executive suite musical chairs, dealing with increased competition from the likes of Walmart and Target, and looking for any and all ways to create breathing room that will allow it to survive.
According to the Wall Street Journal, A&P “listed total debts of more than $3.2 billion and assets of about $2.5 billion in a petition filed in bankruptcy court in White Plains, N.Y.
The grocery chain secured $800 million in so-called debtor-in-possession financing from J.P. Morgan Chase & Co. to keep it afloat during bankruptcy proceedings ... A&P also had about $13 million in interest payments due to unsecured creditors Wednesday...and wanted to preserve that money rather than pay it to those that would be lower down in the payment pecking order during bankruptcy proceedings.”
The Journal also writes that “a person familiar with the situation said A&P's inability to negotiate concessions from its main supplier, C&S Wholesale Grocers Inc., contributed to the chain's decision to seek bankruptcy protection.”
A&P was founded in 1859. At one point, in the 1930s, it had 1600 stores..but today it has about 400 stores operating under several banners. The company has been closing and selling stores in recent months, but the efforts seem to have been too little, too late.
“We have taken this difficult but necessary step to enable A&P to fully implement our comprehensive financial and operational restructuring,” said Sam Martin, the company’s current CEO, in a prepared statement.
Jake Brace, a onetime United Airlines executive, has been hired at A&P’s new chief restructuring officer.
Crain’s Detroit Business writes that the bankruptcy filing is like to “hit metro Detroit landlords hard” because of all the A&P-owned Farmer Jack stores that remain closed but under long-term leases, many of which run well into the next decade. “Over the summer, A&P sent landlords letters indicating it will no longer pay rent on the long-term leases,” Crain’s reports. “As a result, there are 25 ongoing lawsuits filed by retail store owners who have not been paid. In addition, a retail broker hired to do work for A&P has also filed suit for not being paid.
“According to a Crain's analysis of the lawsuits, it would cost A&P more than $150 million to pay the total rent owed for the remaining years left on all of the leases.”
And, the New York Post writes that the big winner in all this tumult could be investor Ron Burkle and his Yucaipa Cos., which “has scooped up ‘a lot or most of’ the secured portion of A&P's massive debt load, whose face value now exceeds $1 billion, according to one source close to the situation.
“That puts Burkle in position to take the reins of A&P from the Germany-based Tengelmann family, which has controlled the company for years -- since taking an initial stake more than three decades ago. In July 2009, the Tengelmanns allowed Yucaipa to buy $115 million of A&P's preferred shares, giving it a 27.6 percent equity stake.
“While that investment will likely be wiped out, an A&P bankruptcy filing ‘is not necessarily bad’ for Burkle, said a source close to the situation, who noted that Burkle's recent purchases of A&P's debt, at a steep discount, will give him sway over a bankruptcy process.”
- KC's View:
- While we’ve been highly critical of A&P management over the past few years and the need for a little revolution at the highest levels of responsibility there, there is no gloating in the halls of MNB Global Headquarters about this turn of events.
This was inevitable. What I don’t know is whether the sale of the company to some other entity is equally inevitable. But it seems clear that enormous changes have to be made out in Montvale, New Jersey, if A&P is going to have any sort of shot.