Supermarket chain expects business as usual through financial restructuring
UPDATE: Just four days after Bloomberg News reported Tops Markets LLC could be headed for bankruptcy, the company confirmed it is filing for reorganization under Chapter 11 to begin financial restructuring.
Tops CEO Frank Curci issued a statement this morning saying the supermarket chain has received a commitment for $125 million debtor-in-possession term loan financing from certain note holders and a $140 million DIP asset-based revolving loan from Bank of America NA that are expected to support the company’s continued operations during the court-supervised restructuring process.
“We believe the financing that we received from our noteholders is a vote of confidence in our business,” Curci said. “Our operations are strong, and we have an outstanding network of stores and a talented team to support them.
“We are now undertaking a financial restructuring through which we expect to substantially reduce our debt and achieve long-term financial flexibility,” he continued. “This will enable us to invest further in our stores, create an even more exceptional shopping experience for our customers and compete more effectively in today’s highly competitive and evolving market.”
Tops Markets has 169 full-service supermarkets, including four in Ontario County, and employs more than 14,000 people in Upstate New York, northern Pennsylvania and Vermont.
Papers were filed in U.S. Bankruptcy Court for the Southern District of New York.
An earlier article, published in the Feb. 21 Chronicle-Express follows:
A debt restructuring of Tops Friendly Markets was projected a month ago by Standard & Poor’s when it downgraded the supermarket chain’s rating from CCC+ to CCC.
Now, Bloomberg reports Tops Holding II Corp., the indirect parent to the grocery chain, is preparing to file for bankruptcy in the coming weeks, along with Bi-Lo, the company behind the Winn-Dixie chain.
Bloomberg, in a story published Saturday, says both chains are readying for bankruptcy, “according to people with knowledge of the matter” — but Burt Flickinger III, a bankruptcy expert with the New York City consulting firm Strategic Resource Group, said he would take the report “with a proverbial grain of salt” and hopes it does not push the Erie County-based chain into filing for protection from its creditors.
“Reports from news organizations should not contribute to a perception of panic as it did with Toys”R” Us,” Flickinger said.
The toy retailer filed for Chapter 11 bankruptcy protection in September, which Flickinger called a tragedy.
Tops has four stores in Ontario County — in Canandaigua, Farmington, Clifton Springs and Geneva — with a gas station at its Geneva supermarket. There are also three in Wayne County (Walworth, Lyons and Ontario), one store in Yates County (Penn Yan), and several in Monroe County.
“The stores in Ontario County with Tops fuel centers and gas are doing well,” Flickinger said. “The stores without gas are just doing OK.”
Tops, according to its website, operates 169 full-service supermarkets, along with an additional five operated by franchisees under the Tops banner, and employs more than 15,000 associates.
“With low margins and ample competition, the grocery business has always been challenging,” according to the Bloomberg article by Lauren Coleman-Lochner and Eliza Ronalds-Hannon. “But now the industry is contending with a more aggressive push by big-box retailers and Amazon.com Inc., which acquired Whole Foods last year to give it a larger brick-and-mortar presence. The moves threaten to force older chains to either consolidate or revamp their operations.”
When Standard & Poor’s downgraded Tops Holding II Corp.’s rating on Jan. 22, it noted a negative outlook.
A CCC rating means a company is “currently vulnerable” and dependent upon favorable business, financial and economic conditions to meet its financial commitments.
“We believe the U.S. grocery store operator, Tops Holding LLC’s persistent underperformance will continue as it contends with heightened competitive pressures, increasing the likelihood of a debt restructuring,” the S&P report says. “The downgrade reflects our view that challenging conditions in the U.S. food retail industry will continue to weigh on Tops’ operating performance, pressuring the company’s already thin credit protection metrics and increasing the potential for a debt restructuring.”
On the same day, Reuters reported Tops had asked investment bank Evermore Inc. for advice on how to tackle its debt load.
Flickinger acknowledges Tops has a high degree of debt — around $650 million — but said its Tops gas stations have record-breaking profitability and the chain could raise money to pay down debt by selling profitable convenience stores in the Adirondacks and Vermont.
Flickinger, who is also a member of the advisor council of the Dyson School of Applied Economics and Management at Cornell University, said Tops will never be a Wegmans, which he rated as the best retailer in the world, but could coexist in its market in upstate New York, northern Pennsylvania and western Vermont with Wegmans currently concentrating its growth in the Boston area and down South.
Tops chairman and CEO Frank Curci has not commented publicly on the Bloomberg report, as of Monday evening, and Kathy Romanowski, public and media relations specialist for the company, did not respond to calls.
Flickinger said Tops is really going to need help from its vendors and employees, as well as lawmakers, to create an even playing field for Tops to compete against competitors Amazon.com Inc., Whole Foods Market and Walmart, which he said have received a lot of government funds, putting them at an unfair advantage.
Flickinger also said he knows first hand that there’s an active interest from strategic retail buyers to acquire Tops, but declined to say who prospective buyers might be for confidentiality reasons.
Another thing in Tops’ favor, according to Flickinger, are its prime locations.
“They should pull through,” he said. “Everything being equal, as long as Tops can continue to make payments on the debt, Tops should be OK.”
The situation is being closely monitored by United Food and Commercial Workers Local One, which represents 12,000 Tops employees.
Union President Frank DeRiso issued a statement Sunday saying union members have been meeting with financial advisors hired by its international union to continually monitor the finances of Tops Markets.
“Since mid-January, UFCW Local One has been consulted by our legal team consisting of health care, pension and 401K attorneys and an attorney that specializes in restructuring and bankruptcy filings,” says the statement. “We have additional meetings set up this coming week to discuss more strategies to hit this situation head on.”
A spokesperson at the union’s Oriskany headquarters in Oneida County said Monday there was nothing new and that updated statements will be posted to the website as they become available.
DeRiso notes Tops Markets is paying all contractual obligations, including heath, pension and 401K contributions. The contract for the local is in full effect.
“We are monitoring this situation and will keep members informed of new developments,” the statement says.
Mike Manikowski, director of the Ontario County Office of Economic Development, said he had not heard anything about Tops Market’s potentially filing for bankruptcy, other than the Bloomberg report, but that his office likely would not have heard anyway.
“There’s no reason for me to know,” he said. “We don’t get involved in these type of retail services, but we love having them.”
He said his family likes shopping at the Farmington store on Route 96, which completed a $1 million renovation two years ago after acquiring the site from Wade’s Market.
“They’re wonderful and they do a great job,” Manikowski said of Tops. “Who knows what’s going to happen? This may happen. This may not happen. We’ll see. All I know is we shop at Tops and we like it.”
Manikowski was one of the few people who could be reached Monday on the national Washington’s Birthday holiday.