NEW YORK -- Product vendors already nervous about Winn-Dixie's future had another reason to worry last week when they learned the official committee charged with working on a reorganization plan with the bankrupt retailer would be dominated by institutional creditors.
In a meeting here last week attended by SN, U.S. Trustee Deirdre A. Martini named three bondholders, two landlords and two vendors to the seven-company committee, which generally consists of a debtor's largest unsecured creditors willing to serve, Martini said.
While it is unclear what recommendations the committee would ultimately make, some vendors appeared upset by the announcement of the committee's composition. Sources told SN it's unusual in a retail bankruptcy to see vendors outnumbered. They predicted that could complicate Winn-Dixie's future because any reorganization plan without vendor support is doomed to fail. Jacksonville, Fla.-based Winn-Dixie will be challenged to come up with a reorganization plan that can satisfy its bondholders, and is compelling for landlords and vendors.
"This is highly unusual," Bernard A. Katz, a partner at J.H. Cohn, an Edison, N.J.-based consultancy, told SN.
"Winn-Dixie is dead unless they can come up with a plan to generate vendor support."
Kraft, Chicago; and Pepsico, Plano, Texas, were the vendors named to the committee. According to bankruptcy papers, Winn-Dixie owed each about $15 million prior to its bankruptcy filing last month. Bondholders named to the committee were R2 Investments, Fort Worth, Texas; Capital Resource Management, Los Angeles; and Oak Tree Capital Management, Los Angeles. New York-based landlords New Plan Excel Realty Trust and Deutsche Bank Trust were also named to the committee.
New Plan, a real-estate investment trust, said it owns 20 Winn-Dixie leases, including 19 operating stores, that generate $4.5 million in annual rent. Deutsche Bank holds a group of leases resulting from a private transaction with Winn-Dixie, sources said. R2 Investments, a hedge fund that previously identified itself as Q Investments, last month said it held around one-third of Winn-Dixie's $300 million in unsecured debt. The committee last week retained Milbank, Tweed, Hadley & McCloy, New York, as its legal advisor.
According to Katz, whose firm advised vendors in matters related to the Fleming bankruptcy, Winn-Dixie's reorganization plan will need to include a trade lien program in order to receive vendor support. Under such a program, vendors would extend credit to Winn-Dixie in exchange for a plan to pay reclamation claims over time, and a subordinate lien on assets, primarily inventory.
Several vendors contacted by SN declined to comment on the status of their relationship with Winn-Dixie. However, some at the committee meeting in New York last week indicated they were irritated by the retailer's actions in days leading up to its bankruptcy filing. One vendor, after hearing the committee appointments, said, "This is Fleming all over again." The vendor was referring to the grocery distributor whose bankruptcy and subsequent liquidation resulted in factions of warring creditors. It was possible, Katz said, that vendors could gather to form an unofficial creditors committee. An unofficial committee would be recognized by the court, but its lawyers and advisors would not be paid for by the debtor.
Landlords will be concerned primarily with how Winn-Dixie's changing footprint will affect them and their properties. Generally, sources said, landlords, like vendors, would support a plan resulting in Winn-Dixie's improved health as a retailer. "Vendors want to keep selling macaroni and cheese, and landlords want to keep new rent coming in," Peter Chapman of Bankruptcy Creditors' Service, Fairless Hills, Pa., told SN.
Those desires will have to be balanced against those of the bondholders, who don't necessarily stand to gain from continuous operations, Katz explained. "The bondholders need to assess whether a downsized Winn-Dixie will be profitable -- and, therefore, worth a lot more money -- after bankruptcy, as opposed to selling it today. Remember that in order to get Winn-Dixie to a point at which it's profitable, there will need to be more dollars expended."
According to Chapman, bondholders may feel "a certain buoyancy in Winn-Dixie because of Kmart," the mass merchant that three years ago filed a massive Chapter 11 case and emerged under control of a hedge fund that converted claims into new stock. The stock skyrocketed as the reconfigured company sold off many of its top stores. "The investor fantasy is that Winn-Dixie becomes another Kmart," he said.
