WAYNE, N.J. -- Grand Union Co. here said last week it is preparing to solicit consents from its senior noteholders and the holders of its preferred stock following receipt of a commitment from two investment banking firms to provide a $300 million credit facility as part of the chain's capital-restructuring plan.
The company said the new financing will be provided by S.B.C. Warburg Dillon Read and Lehman Brothers, both based in New York. The restructuring plan calls for the company to reorganize following a voluntary prepackaged Chapter 11 filing, under terms negotiated in late March with an unofficial committee of senior noteholders that represents approximately $275 million of the company's $595 million in senior notes. According to that plan, the 12% senior notes would be exchanged for common shares of the reorganized company.
Grand Union said last week it expects to file the prepackaged Chapter 11 in early June and to emerge from bankruptcy "as a vibrant new company, significantly deleveraged and prepared to move ahead aggressively with a growth-oriented five-year business plan."
The company said it has received a letter from representatives of preferred shareholders indicating they do not approve the terms of the restructuring plan and do not believe the company may solicit consents to the plan without their approval. Grand Union said it believes the position stated in the letter "is without merit."
Five Grand Union directors who represented preferred shareholders have resigned from the chain's board, including Roger E. Stangeland, the chain's former chairman; James J. Costello and J. Richard Stonesifer, both retired executives of General Electric Co., and Clifford A. Miller and Geoffrey T. Moore, representing Shamrock Capital Advisors. GE and Shamrock were the chain's two major investors since it emerged from Chapter 11 bankruptcy in June 1995.
The company said it plans to appoint eight independent directors to the board to join the six remaining directors.
According to J. Wayne Harris, chairman and chief executive officer, "Implementation of the capital restructuring plan will mark the first time in more than 10 years that Grand Union can operate without the onerous debt burden that has prevented it from being truly competitive.
"The deleveraging will eliminate all $595 million of the company's senior notes and will help provide the necessary funds for the company to execute its business plan and take advantage of our strong growth and capital-development potential."
Bob Lupo, a high-yield securities analyst with BA Securities, Chicago, told SN he views the proposed reorganization as constructive.
"It will leave Grand Union with the least leveraging it has had in the last decade, and it will enable the company to have sufficient operating flexibility to be competitive in the market."
He said the restructuring is the brainchild of the chain's current management team, which was installed late last year.
"The new team realized the company's dire situation and recognized it could not meet its significant operating challenges with the capital structure that was in place," Lupo said.
This is the second time Grand Union has filed Chapter 11. The company emerged from its last filing in 1995.