Southeastern, Tops Considering Chapter 11: Reports

Privately held chains saddled by high debt
Winn dixie

Two regional supermarket chains saddled with heavy debts coming due are separately considering filing for Chapter 11 bankruptcy protection, according to reports.

Southeastern Grocers, the Jacksonville, Fla.-based operator of Winn-Dixie, Bi-Lo, Harveys and Fresco y Mas is said to be considering closing up to 200 of its 700 stores in connection with a bankruptcy, Bloomberg reported. The same report said Tops Holdings, parent of the Tops Friendly Markets, chain is also considering a Chapter 11 filing. Tops, based in Williamsville, N.Y., operates 170 stores.

Both chains are owned by private equity interests and have considerable debt. Southeastern has around $1 billion in debt coming due in two tranches over the next 12 months. Tops has more than $700 million in debt and completed credit analyst Moody’s described as a “distressed exchange” over the summer to refinance debt due this summer.

Both chains are said to have separately engaged the Evercore to advise them in restructuring. An Evercore spokesman declined comment.

“Southeastern Grocers is undertaking an ongoing strategic review in advance of our unsecured bond maturity later this year,” spokesman Joe Cladwell told WGB. “The company’s business operations continue to be strong, as we serve our customers with quality and commitment by working seamlessly with our business partners every day. We are dedicated to being a great place for associates to work and a great place for our customers to shop by providing quality, service and value in the communities we serve.”

WGB previously reported on SEG's ongoing efforts to refinance its debt in November. A restructuring under Chapter 11 is only one possible outcome of the negotiations with creditors for both chains.

A Chapter 11 could benefit cost structures of the companies by allowing them to exit unfavorable contracts and store leases, but could reflect poorly on its image with shoppers and trigger issues with trade creditors.

Both companies were making slow progress on rebuilding their respective core businesses, sources said, but a long streak of food deflation last year masked those advantages. Both retailers had also made acquisitions in recent years to build scale.

Tops has undergone two leveraged buyouts. The company, which was once owned by Ahold, was acquired by Morgan Stanley investors and then bought from Morgan Stanley by its management team. The company has grown through the acquisition of Penn Traffic’s retail stores following that company’s bankruptcy. More recently, Tops acquired and converted several stores spun off in the Ahold-Delhaize merger.

Tops had sales of $2.3 billion in its 2016 fiscal year, its most recent that was publicly reported. A spokesperson was not immediately available for comment.

Southeastern is controlled by the private equity firm Lone Star Funds and consists of two entities that previously filed for bankruptcy protection. Bi-Lo, which Lone Star acquired from Ahold in 2005, filed for Chapter 11 in 2009. It emerged under Lone Star’s control and bought its larger rival Winn-Dixie in in 2012. Winn-Dixie had previously been through a lengthy stay in Chapter 11.

Southeastern was in the process of remaking its store base behind a formatting strategy that converted some Winn-Dixie stores to a new Hispanic-focused banner called Fresco y Mas, while remaking its Harveys banner to a price-focused format that took over a number of Bi-Lo and Winn-Dixie stores. These moves helped to slow the rate of comparable-store sales declines plaguing the company, sources said, but management fees and dividends taken by Lone Star has contributed to its high debt.



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