Fairway Market parent files for bankruptcy protection
New York-based Fairway Group Holdings Corp. (Fairway), the parent company of New York food retailer Fairway Market, said it reached an agreement with its senior secured lenders holding more than 70 percent of its senior secured debt on the terms of a reorganization. The reorganization would eliminate approximately $140 million of senior secured debt and provide financing to restructure the company's balance sheet.
To implement the agreed-upon restructuring, Fairway and certain of its subsidiaries filed a joint prepackaged Chapter 11 plan of reorganization and filed voluntary petitions for protection under Chapter 11 of the U.S. Bankruptcy Code in the United States Bankruptcy Court for the Southern District of New York. The company said it intends to use the Chapter 11 process to facilitate a financial restructuring designed to restore Fairway to long-term financial health while continuing to operate in the normal course of business without interruption.
In accordance with the plan, holders of general unsecured claims, including suppliers, employees, unions and all other trade creditors, will receive payment in full on account of existing obligations in the ordinary course of business, the company said. Further, the five collective bargaining agreements between Fairway and each of the unions will be assumed under the plan and remain in full force and effect. All of the company's outstanding shares of common stock will be cancelled pursuant to the prepackaged plan, with no distribution to holders.
As a part of the prepackaged plan, Fairway said it entered into an agreement with certain holders of the company's senior secured loans. Supporting lenders agreed to vote in favor of the plan and exchange their loans for common equity and $84 million of debt of the reorganized company. All other prepetition creditors will not be impaired and will be paid in the ordinary course. Successful implementation of the proposed plan would result in a substantial conversion into equity of the company's $279 million of senior secured loans.
In conjunction with its filing, Fairway said it is seeking approval to enter into a $55 million super-priority secured debtor-in-possession (DIP) credit facility and a $30.6 million letter of credit facility to cover outstanding letters of credit, which will be provided by certain of the company's existing senior secured lenders. The proposed DIP financing will help support Fairway's reorganization plans and enable normal post-petition operation of its business, including timely payment of employee wages, benefits and other obligations on an uninterrupted basis. In addition, Fairway secured a commitment from its current lenders to convert the amounts extended under the DIP loan to an exit loan. The company also filed a number of customary first-day motions with the Bankruptcy Court to support ongoing operations.
"We believe that implementing this prepackaged plan is the best opportunity for Fairway to restructure its balance sheet on an expedited basis, strengthen its operations, retain jobs and create long-term value, while continuing to provide customers with the best food experience in the greater New York area," said Jack Murphy, CEO.