Struggling grocer Fairway Group Holdings Corp. has reached a tentative deal with creditors to restructure its debt in bankruptcy, according to people familiar with the matter.
The deal would likely put the New York-based gourmet grocery chain into Chapter 11 proceedings by the end of May, one of the people said.
Fairway’s lenders, led by Blackstone Group LP credit arm GSO Capital Partners, would provide a loan enabling it to continue operations while still in court, said the people, who asked not to be identified because the discussions are private. The specific terms are still being worked out, including the size of the financing package and whether all store lease contracts will be maintained at its less profitable locations, one of the people said.
Under the deal, lenders would take over ownership of the business after Fairway completes its debt restructuring, said the person. The company, which is being advised by Greenhill & Co., would focus on turning around the chain without closing the majority of its stores, the people said. The company also brought on Alvarez & Marsal Inc. to advise on the restructuring plan, the people said.
Going Concern
The bankruptcy plan comes after Fairway put itself up for sale but failed to find buyers, the people said.
Paula Chirhart, a spokeswoman at Blackstone, declined to comment. Representatives for Fairway, Greenhill and Alvarez & Marsal didn’t immediately respond to phone calls and emails seeking comment.
With money-losing stores and mounting competition, Fairway 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. In February, the company revealed in a filing that its auditor questioned whether it can continue as a going concern.
In many ways, Fairway’s a victim of timing. The company has yet to report a profitable quarter since its initial public offering three years ago. It went public as national chains like Whole Foods Market Inc. and Trader Joe’s started aggressively competing in New York City. In addition, stores like Costco Wholesale Corp. began selling similar high-end products at lower prices.
Fading Novelty
The novelty of a grocer like Fairway, known for items such as triple-digit-per-pound ham from black-footed, acorn-eating Spanish pigs, has worn off, said Ken Rosen, head of the bankruptcy and restructuring practice at Lowenstein Sandler.
“Fairway used to be really unique,” said Rosen. Now, “every supermarket everywhere has gone upscale.”
The company’s shares have dropped 94 per cent in value in the past 12 months.
They last traded at 39 cents at 3:04 p.m. in New York on Friday.
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