Outlying Penn Traffic Stores More Likely to Close – Update
While Tops Friendly Markets, the new owner of bankrupt supermarket chain Penn Traffic, has not specified what or how many stores it will close, it has indicated that stores further away from Penn Traffic’s core central New York market are more likely to shut down.
That would place Penn Traffic locations in New Hampshire, Pennsylvania and Vermont at higher risk of closure. However, according to the Syracuse Post Standard, Tops officials say a “small handful” of stores will close and each store will be evaluated on its financial health and potential. Tops may also sell some of the Penn Traffic stores it purchased. Tops is keeping all 79 Penn Traffic stores open for 30 days from the January 29, 2010 date when the purchase agreement went into effect.
In addition, Tops will reportedly invest an undisclosed sum into renovating stores which remain open. Some employees may be laid off, but Tops said it will solicit feedback from store managers on their employment needs and plans to increase overall employment in an effort to boost business. Existing employees will not be asked to re-interview.
Tops Buys Penn Traffic
According to the Syracuse Post-Standard, Tops finalized its purchase of Penn Traffic for $85 million in cash and $25 million in reduced claims on Friday, January 29, 2010. The purchase agreement has been approved by the U.S. Bankruptcy Court, District of Delaware, but is still under review by the Federal Trade Commission (FTC). Tops will keep all 79 Penn Traffic stores open for 30 days. Tops Friendly Markets initially received court approval for its purchase bid Tuesday, January 26, 2010.
Tops, whose bid is backed by private equity fund Morgan Stanley Private Equity, currently operates 76 supermarkets in New York and Pennsylvania. Penn Traffic operates stores under the BiLo Foods (not related to Bi-Lo LLC), Quality Markets, and P&C Foods banners.
Price Chopper Claims Collusion
Regional supermarket chain Price Chopper is seeking $1.6 million in damages because it claims Penn Traffic engaged in a “collusive” bid agreement with Tops Friendly Markets. Price Chopper, which operates 114 stores in New York, Vermont, Connecticut, Pennsylvania, New Hampshire and Massachusetts, bid $54 million for 22 Penn Traffic stores on December 15, 2009. Most of the 22 stores were located in central New York and four stores Penn Traffic had initially tried to purchase shortly after Penn Traffic filed for Chapter 11 bankruptcy in November 2009 were included in the group.
Price Chopper says it had discussed buying all 79 Penn Traffic stores and then entered into a private sale agreement with Penn Traffic for the 22 stores. On January 8, 2010, the day the agreement was scheduled for submission to the bankruptcy court, Tops submitted a bid for all of Penn Traffic’s stores.
According to Price Chopper, Penn Traffic had negotiated with Tops prior to the bid, in breach of the private sale agreement. The $1.6 million in damages represents a 3% break-up fee for the $54 million agreement.
Other Bidders Lose Out
Tops was one of several parties interested in purchasing some or all of Penn Traffic’s assets. Penn Traffic initially had the bidding deadline for its stores and assets pushed back due to Price Chopper’s December 15, 2009 bid for 22 of its stores. In addition, an unidentified bidder represented by liquidation specialists Capital Services, Gordon Brothers Group, The Nassi Group, SB Capital Group, and DJM Realty Services also bid on 75 of Penn Traffic’s 79 stores. According to Supermarket News, the liquidation group guaranteed Penn Traffic at least $36.5 million in any sale of its assets, in addition to a revenue split for any money beyond that amount plus a $6.5 million transaction fee.
On Tuesday, January 19, 2010, a group of Penn Traffic employees told the bankruptcy court they wanted to purchase Penn Traffic under a stock ownership plan and were arranging financing from Ameri-First Enterprises Corp. However, the employee group never made a formal bid before Judge Peter J. Walsh ruled that Penn Traffic could accept Tops’ bid.
Penn Traffic Files Chapter 11 – A Brief History
Penn Traffic voluntarily filed petitions for Chapter 11 protection on November 18, 2009. The case number is 09-14078 and bankruptcy management firm Donlin Recano is assisting Penn Traffic.
Penn Traffic initially requested permission to sell its 79 stores and liquidate its merchandise on Monday, December 7, 2009. The retailer had sought to complete sale of its assets by Tuesday, December 29, 2009 and have the sale approved by the bankruptcy court by Wednesday, December 30, 2009.
In a hearing on Tuesday, December 8, 2009, Judge Peter J. Walsh granted Penn Traffic a petition for protection against utilities shutting off services, according to The Post-Standard. Previously, Penn Traffic received bankruptcy court approval on a number of first day motions that will allowed it to temporarily continue most operations as usual while it underwent Chapter 11 restructuring activities.
Walsh temporarily granted Penn Traffic requests to continue paying and administering prepetition wages, compensation, benefits and insurance policies, as well as pay certain prepetition carrier and related obligations, pay taxes and continue to use bank accounts and cash management systems.
According to a press release, Penn Traffic’s board of directors determined “…the interests of the company’s creditors and other stakeholders would be best served by seeking Chapter 11 bankruptcy protection to facilitate an orderly sale of its stores and other assets with the consent of its senior secured lenders.” Penn Traffic, which closed eight stores in January 2009, is seeking ongoing bankruptcy court for permission to continue to operate its stores as “debtors in possession” during the bankruptcy process.
Penn Traffic Reports Net Loss
In its most recent quarterly fiscal report [pdf], released September 15, 2009, Penn Traffic reported a $7 million net loss, 6.8% decline in same-store sales, and 8.5% decline in revenues. On November 4, 2009, Penn Traffic entered a forbearance agreement [pdf] to maintain letters of credit and other forms of credit through November 25, 2009 with its senior working capital lenders.
Regional Supermarkets File Chapter 11
Penn Traffic is the latest regional supermarket retailer to file for Chapter 11 bankruptcy. Southeastern chain Bi-Lo LLC filed for Chapter 11 bankruptcy in March 2009. According to Supermarket News, Belgian conglomerate Delhaize agreed to purchase Bi-Lo for $425 million last month, with the intent of folding the chain into its Food Lion banner. However, Bi-Lo has since rejected that offer in favor of a cash infusion from its existing owner, private equity firm Lone Star Funds, although Food Lion has publicly stated it is still interested in purchasing at least some of Bi-Lo’s assets.
In July 2009, Bashas’, a regional supermarket retailer with roughly 150 stores in Arizona, California and New Mexico, filed for Chapter 11 bankruptcy protection, closing 10 stores shortly thereafter. Today, Bashas’ submitted a a preliminary reorganization plan that includes payment in full to all approved prepetition creditors.
Another Southeastern supermarket chain, Bruno’s Supermarkets, met a similar fate this year. Bruno’s filed for Chapter 11 protection in February 2009 with the intent of remaining in business. However, Southern Family Markets wound up purchasing Bruno’s assets at bankruptcy auction in April 2009 and liquidated 25 stores, keeping 31 open on a “going concern” basis.