NY Grocery Chain Fairway on Brink of Default
“As with many segments of retail today, especially those in shopping malls and some strip centers, specialty retailers are finding that consumers are not meeting expectations of these retailers with respect to interest and demand, and the retail environment in the United States is undergoing a change in both perception and reality.” – Chuck Tatelbaum
Fairway Group Holdings Corp., the New York gourmet grocery chain that once had ambitions of a nationwide expansion, is approaching default after years of red ink, Bloomberg News reported on Friday. After gorging on debt to finance its growth plans, the company is now at risk of breaching its credit covenants when its fiscal quarter ends on April 3, according to report by Moody’s Investors Service. And even if Fairway gets a reprieve from its obligations, its capital structure remains unsustainable, Moody’s wrote.
With money-losing stores and mounting competition, the grocer has received two warnings about being delisted from the Nasdaq Stock Market for failing to maintain a minimum market capitalization of $15 million for three consecutive business days. Earlier this month, the company revealed in a filing that its auditor questioned whether it can continue as a going concern.
Moody’s downgraded Fairway’s $267 million senior secured term loan and its revolving credit facility one notch to Caa2, eight levels below investment grade. The term loan was quoted at a new low of 79.5 cents on the dollar on Tuesday, down from a high of 90.6 cents on Dec. 8, according to data compiled by Bloomberg
To bring its operations in line, analysts are advising the company to halt its plans to expand beyond its New York base. The chain has already pulled out of leases in lower Manhattan and the new Hudson Yards complex under construction on Manhattan’s Far West Side. Of its 15 stores, seven are in Manhattan, Brooklyn and Queens, with the rest outside the city in places such as Pelham Manor, N.Y., and Paramus, N.J.
Charles M. Tatelbaum focuses his practice on bankruptcy and creditors’ rights issues, complex business litigation, Uniform Commercial Code transactions and lender liability litigation and other types of secured transactions, as well as domestic and international letters of credit.
He regularly represents secured and unsecured creditors in transactions and insolvency situations, creditors’ committees, and throughout the United States he represents business clients in complex business litigation, the defense of lender liability claims, all types of bankruptcy proceedings and products liability defense based on warranty. He also represents secured and unsecured creditors in distressed business transactions and litigation. He has also has represented clients in Chapter 9 municipal bankruptcy proceedings and Chapter 15 foreign bankruptcy proceedings.
As an example, he represented the major motor vehicle floor plan lender in the largest motor vehicle dealer bankruptcy in U.S. history, recovering more than $150 million, which constituted payment in full of principal, interest, attorney fees and costs. In that case, the court awarded a $300,000 substantial contribution fee to the represented lender. As another example, he has represented the lender in the worldwide bankruptcy proceeding of Saab Automobiles, and was able to obtain payment in full of all principal, interest and attorneys’ fees. As of a result of his prior work with the U.S. State Department in eastern Europe to develop bankruptcy laws in Croatia and Slovakia, Mr. Tatelbaum has regularly handled business and insolvency issues that develop in foreign countries.