Grocery store chain A&P, which filed for bankruptcy on Sunday, may have to shutter a quarter or more of its stores if it hopes to survive, analysts say.
In bankruptcy, the company officially known as The Great Atlantic and Pacific Tea Co
The company will ask a bankruptcy judge on Monday for interim approval of an $800 million bankruptcy loan, which analysts said could give it 18 months for an overhaul.
It's a tough workout, said Joe Stauff, who analyzes distressed companies for Susquehanna International Group.
Stauff said the company could close more than 100 of its 395 stores, which operate under the names of A&P, Waldbaum's, SuperFresh, Pathmark, Food Basics and The Food Emporium in the Northeastern United States.
As we said when we announced our turnaround plan in October, we continue to analyze our store portfolio and will do so in Chapter 11, said Eric Andrus, an A&P spokesman.
A&P rushed into bankruptcy as its cash was dwindling and a debt payment was looming this week. Unlike most big bankruptcies, the grocery chain does not have a pre-arranged plan for coming out of court protection.
The company has been squeezed by cut-rate operators of warehouse stores, such as Costco Wholesale Corp
Unable to pass along rising wholesale costs at the checkout, supermarkets have been forced to gain scale through size or tightly control costs such as leases.
Several other regional supermarkets have gone through bankruptcy in recent years, including Bruno's, Bi-Lo, Penn Traffic Co and Bashas'.
Shares of A&P competitor Supervalu Inc
While SuperValu is not an imminent risk of bankruptcy, that could change if its numbers unravel in the coming quarters, said Evan Mann, senior high yield analyst at Gimme Credit.
SuperValu did not immediately return a call for comment.
BLUNDER AFTER BLUNDER?
Analysts expect A&P to take a hard look at its vendor contracts, leases and other operational costs, as much as its balance sheet and finances.
They tended to overpay for everything. From vendors to landlords they were always an easy mark, said supermarket consultant David Livingston of DJL Research in Waukesha, Wisconsin. They just made one blunder after another.
The company does have some important backers. Ronald Burkle, of the Yucaipa Companies LLC, invested in the company's preferred stock last year in an attempt to fund a revival.
While that investment is likely wiped out, sources told Reuters that Burkle, who amassed a fortune investing in supermarkets, may hold debt positions that could make him a significant player in the bankruptcy.
The company's chief restructuring officer, Frederic Brace, was appointed to the A&P board of directors by Burkle.
If Burkle has bought secured debt that gets paid first in a bankruptcy, it says he wants to be player and wants to control the company and do the Eddie Lampert thing, said Leah Hartman, an analyst with CRT Capital in Stamford, Connecticut, which specializes in distressed companies. She also said she expects up to 100 stores being closed.
Lampert, a billionaire hedge fund manager, took control of Kmart when it emerged from bankruptcy in 2003 and later merged it with Sears Roebuck & Co. He chairs the combined company.
A&P needs to integrate under one name, said Mark Freiman, a senior retail consultant at Focus Management Group.
IMPACT ON REAL ESTATE
The bankruptcy could leave landlords scrambling to fill empty stores, which average about 42,000 square feet per location.
New York-based Acadia Realty Trust
Strip center landlords face challenges filling stores. Other chains under pressure include Blockbuster Inc,
The shake-out of lower-tier retailers highlights the continued softness in the retail environment going into the holiday season, Sullivan said.
The case is In re The Great Atlantic and Pacific Tea Co, U.S. Bankruptcy Court, Southern District of New York, No. 10-24549.
(Additional reporting by Lisa Baertlein and Ilaina Jonas in New York; Editing by Tim Dobbyn)