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Fairway Denies Chapter 7 Report, Says Deal Is Coming

Iconic retailer at work on 'value-maximizing transaction'
Photograph by WGB staff

Fairway Group Holdings, the parent of the iconic but troubled Fairway Market chain in New York, is denying a published report that said it would seek Chapter 7 bankruptcy protection and liquidate its stores, saying instead it was engaged in talks on a transaction that could save them.

Fairway operates 14 fresh food-focused destination stores in and around New York, but it has long struggled under heavy debts and an influx of new competition. The company has been under the eye of the debt market for some time, with Moody’s Investors Service citing an “untenable capital structure,” low liquidity and challenging growth prospects in coming months.

The New York Post, which earlier this month said the company was considering seeking Chapter 11 bankruptcy and was in talks with potential buyers, including ShopRite operator Village Super Market, reported this week that a liquidation under Chapter 7 was imminent, prompting the following denial from the company.

“Fairway has been engaged in a strategic process and expects to soon announce a value-maximizing transaction that will provide for the ongoing operations of stores. Our lenders remain extremely supportive of our efforts,” the company said.

Fairway’s statement did not identify parties in a deal or offer details of the manner in which it envisioned the stores would continue operating. WGB’s call for additional comment from Fairway executives was not immediately returned.

Fairway filed for Chapter 11 protection in 2016, seeking to dig out of debt incurred in a leveraged buyout by Sterling Investment Partners, which had acquired the brand from the founding Glickberg family and briefly listed it on the New York Stock Exchange. The 2016 event transferred that debt to new equity, now controlled by Brigade Capital Management and Goldman Sachs.

Fairway, which had annual sales of $664 million for the fiscal year ending June 30, carries about $174 million in debt in addition to high real estate costs in New York.

In its November note to subscribers, Moody’s estimated a lease-adjusted debt-to-EBITDA ratio of more than 15 times over the coming 12 months “as top-line growth is expected to remain elusive due to the highly competitive pricing and business environment."

“We believe that the key to improve profitability will be management's ability to reverse the current negative trend in same-store sales and increase revenues through increased traffic and higher number of transactions while maintaining margins,” the report continued. “The company’s small scale does not afford it much room to absorb any declines in same-store sales and profitability for an extended period of time.”

Burt P. Flickinger III, managing director of New York-based Strategic Resource Group, told WGB this week that he felt the company would be best served by seeking to reject leases of stores in outlying geographies such as New Jersey and Connecticut and concentrating on its core fleet in Manhattan, which he said have performed better under veteran CEO Abel Porter. “This company can be saved,” Flickinger said.

Following Fairway’s statement, a revised Post report cited an anonymous source speculating that negotiations between Fairway and buyers may had reignited.

Village Super Market, a publicly traded member-owner of the Wakefern Food Corp. cooperative, has been active in expansion in New York. Last summer the Springfield, N.J.-based company acquired Gourmet Garage, a three-store gourmet specialty retailer that, like Fairway, was known as a destination for local foodies. Village also opened a ShopRite store in the Bronx in 2018. A Village representative did not immediately respond to a message seeking comment.

Key Food Stores Cooperative, the Staten Island, N.Y.-based co-op whose members operate dozens of New York area stores, was also known to be watching Fairway for opportunities for its members but it is unclear whether it has been involved in recent talks. A Key Food representative was not immediately available for comment.

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