Great Atlantic Bankruptcy (GAP)

Before I begin, I need to correct something I wrote last night introducing the GAP bankruptcy: Rejected lease claims are unsecured claims in a bankruptcy. The GAP 2nd lien notes should be senior to these rejection claims. Chalk it up to lack to sleep. For you real bankruptcy buffs: 502(b)(6) of the Code sets damages at the greater of one year or 15% of the lease (not to exceed three years). Apologies on my part. Net/Net it helped the recovery of the bonds. To note, bonds are up 3-4 points today (went out the day 83-34/flat).

Now to the fun stuff: Great Atlantic announced its decision to file Chapter 11 in the Southern District of NY. To access the docket, you can go here: http://www.kccllc.net/APTea

Now, the DIP is definitely large - but the increased size is to account for taking out existing LOCs and pre-petition bank debt. The DIP will be structured as a $450M RC and a $350M term loan. Pricing is talked at L+750 with a 1.75% Floor. From the docket: "...to secure an $800 million debtor-in possession financing facility, consisting of (i) a $350 million term loan facility to refinance the Debtors’ prepetition senior secured credit facility and provide approximately $187 million in incremental liquidity and (ii) a $450 million revolving facility, including access to a $250 letter of credit sublimit and (b) grant adequate protection to the Debtors’ secured lenders." Essentially, this number was near the upper limit allowed under the pre-petition intercreditor agreement.

As noted in previous posts, one of the most important documents to get yourself associated with a new bankruptcy proceeding is the First Day Affidavit. You can find GAP's here: GAP's First Day Proceedings Affidavit.

A few interesting takeaways from the document:

• "The Debtors’ primary retail operations consist of supermarkets operated under a variety of well-known trade names, or “banners,” including A&P, Waldbaum’s, SuperFresh, Pathmark, Food Basics, The Food Emporium, Best Cellars, and A&P Liquors. As of September 11, 2010, the Debtors reported total assets of $2.5 billion and liabilities of $3.2 billion. The Debtors currently employ approximately 41,000 employees. "
• Points out three "significant legacy costs" - Dark store leases, an unfavorable supply agreement with C&S Wholesale (a high yield issuer itself), employee costs (pensions, high labor % of sales)
• LTM Revenue: $8.4B, down from $9.5B in 2008 and $8.8B in 2009
• LTM EBITDA and EBITDA Margin: $104M and 1.2% respectively, down dramatically from 2008 of $333M and 3.5% respectively.
• 95% of employees under collective bargaining agreements (39 separate agreements)
• Paid $1.4B for Pathmark in 2007
• "The Debtors’ estimated dark store net rental expense will be $77 million in 2011 alone."
• Cap Structure:
• 
• Sames Store Sales down 6.9% YTD
• Cost Savings Efforts Paying Off: "These initiatives have already generated total cost savings of approximately $40 million on an annualized basis, including over $10 million in annual salary savings"
• Really putting a lot of blame on C&S through this entire document.
• $858M of NOLs and $121M in business tax credits

Will be a very entertaining case. Interestingly a few months ago, one Distressed Debt Investors Club member pitched the second liens as a long (they were in the high 60s at the time) right when another member pitched the unsecured bonds as a short. Been a tough ride for 6.75% of 2012:

We will continue monitoring the GAP bankruptcy - think this one could get interesting.