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    A&P Files for Bankruptcy

    JPMorgan Chase to provide $800 million in DIP financing

    The nation’s once most admired U.S. grocer, The Great Atlantic & Pacific Tea Co., filed for bankruptcy in New York, claiming more than $1 billion in assets and more than $1 billion in debt. As the latest pivotal chapter in its long and difficult road to remain afloat, the beleaguered chain filed the voluntary petition to restructure its finances and operations under Chapter 11 of the U.S. Bankruptcy Code in the Southern District of New York.

    During the process, the Montvale, N.J.-based chain -- which owns some 400 stores under brands such as A&P, Waldbaum's, Pathmark and The Food Emporium in New York and surrounding states – says it will be business as usual in its 395 stores, whose shelves “are fully stocked with their complete range of high quality products,” according to its website.

    All existing promotional and customer loyalty programs will remain intact, according to the retailer, whose bankruptcy action will provide it with access to $800 million in debtor in possession (DIP) financing to enable it to continue paying local suppliers, vendors, employees and others in the normal course of business.

    “We have taken this difficult but necessary step to enable A&P to fully implement our comprehensive financial and operational restructuring,” said Sam Martin, A&P’s president/CEO, noting that while the company has “made substantial progress on the operational and merchandising aspects of our turnaround plan, we concluded that we could not complete our turnaround without availing ourselves of Chapter 11. It will allow us to restructure our debt, reduce our structural costs, and address our legacy issues,” the latter of which court records indicate includes leases in locations where the company no longer operates; an unfavorable supply agreement with C&S Wholesale Grocers (which supplies 70 percent of its inventory); and high labor and pension fund costs, among others.

    “With the protections afforded by the Bankruptcy Code and the backing of a new, pre-eminent lender,” Martin A&P will be able to "make strategic decisions that will benefit the company over the long term, enabling [it] to emerge with a new capital structure and in a much improved position to exploit its fundamental strengths.”

    Frederic F. (“Jake”) Brace, who was named chief administrative officer in August, will lead the restructuring effort and will take the additional title of chief restructuring officer.

    As it implements its restructuring plan, A&P said it intends to continue and accelerate the core elements of the turnaround plan announced in October, including:

    • A completely new management team
    • Reducing structural and operating costs
    • Improving the A&P value proposition
    • Enhancing the customer experience in stores

    The company said its major shareholders, including investor Ron Burkle and German-based Tengelmann, support the Chapter 11 action and believe it will advance and accelerate the comprehensive turnaround effort already underway.

    A&P has entered into an $800 million DIP facility with JPMorgan Chase & Co. The company's ability to obtain borrowings under such facility is subject to satisfaction of customary conditions and receipt of court approval. The DIP facility is being fully underwritten by JPMorgan Chase. A hearing to approve a portion of the facility has been scheduled for December 13.

    Upon approval, this DIP facility will be available to fund A&P's operations, pay its vendors and for other corporate purposes. In addition, this financing will provide the capital necessary to improve and renovate select stores and enhance its product offerings. The company also expects to receive full authority to pay employee wages and benefits on an uninterrupted basis.

    Chapter 11 of the U.S. Bankruptcy Code allows a company to continue operating its business and managing its assets in the ordinary course of business. The U.S. Congress enacted Chapter 11 to encourage and enable a debtor business to continue to operate as a going concern, to preserve jobs and to maximize the recovery of all its stakeholders.

    The company's legal representative in its Chapter 11 cases is Kirkland & Ellis LLP and its financial advisor is Lazard.

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