Great Atlantic & Pacific Tea Co., the bankrupt operator of almost 400 supermarkets under names including Waldbaum’s, Food Emporium and Pathmark, won approval of an $800 million loan over objections from bondholders who questioned the role of Yucaipa Cos. LLC.
U.S. Bankruptcy Judge Robert Drain in White Plains, New York today approved the loan after changes that set aside as much as $175,000 per month in legal fees for a trustee to certain notes. A group of bondholders owning the notes said the new loan would put them further in line to be repaid, in violation of an intercreditor agreement.
“I think that’s a fair resolution” Drain said. “It doesn’t resolve issues about the intercreditor agreement. Any issues under that are for another day.”
A&P resolved a creditor committee’s objections to the so-called debtor-in-possession, or DIP, financing last night, A&P lawyer Paul Basta, told Drain today.
“Nobody contests that this is the best and only DIP,” Basta said. “Nobody has a better solution that this DIP.”
The objecting bondholders have 51 percent of A&P’s $260 million in 11.375 percent second-lien notes, according to court documents filed today. They said the loan would put them in line behind $950.5 million in secured debt to be repaid, violating their “constitutionally protected property interests.” Before the loan, they would have been behind just 331.7 million in debt.
Edward S. Weisfelner, a lawyer for the bondholders, said one of the debtors’ largest shareholders, Yucaipa, is widely rumored in the market to also own large part of second lien bonds, and have a large stake in the DIP loan.
“In other words we think they’re all over the capital structure — we’ve been asking to know what Yucaipa is holding,” Weisfelner told Drain today.
According to court papers, Ron Burkle’s Yucaipa owns all of A&P’s series A-Y preferred stock. A&P’s second-largest stockholder is Aletheia Research & Management. Holding more than 5 percent of its voting securities are GAMCO Investors, Bank of America Corp., DBD Cayman Islands and Yucaipa.
JPMorgan Chase & Co., the lead arranger of the loan, has a stake in A&P’s pre-bankruptcy debt and fully underwrote the loan, with permission to syndicate it, according to court papers.
Earlier Interim Approval
The loan was already approved by Drain on an interim basis that let A&P draw $187 million from a $350 million term loan and gives it $200 million in credit from a $450 million revolving credit facility.
Modifications to appease unsecured creditors include an extension that gives them up to 90 days to investigate pre- bankruptcy agreements. The prior period was 60 days.
Landlords objected that the new loan would give lenders a lien on A&P’s leases, violating terms of the leases which prohibit them from being transferred. Under the loan agreement, if A&P defaults on its DIP loan, the lenders can occupy the premises, lawyers for landlords wrote.
Separately, Drain approved A&P’s motion to reject some of its leases.
The retailer, incorporated 110 years ago and based in Montvale, New Jersey, runs stores under its own name, Super Fresh and Food Basics. It listed assets of $2.5 billion and debt of $3.2 billion in its Chapter 11 filing.
A shift in consumer spending to wholesale clubs, drugstores and supercenters has hurt A&P’s sales. Union agreements, which cover 95 percent of its 41,000 employees, also have put it at a competitive disadvantage, according to the company’s filing.
The case is Re The Great Atlantic & Pacific Tea Co. 10- 24549, U.S. Bankruptcy Court, Southern District of New York (White Plains).
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