SYRACUSE, N.Y. -- Penn Traffic Co. here last week said it would not make a scheduled $8.6 million interest payment, leaving it to bondholders to decide the next move.
The company, which is in the process of negotiating a consensual, prearranged restructuring, actually owed the payment in mid-December, but took advantage of a 15-day grace period which expired Dec. 30. In mid-December Penn Traffic said it intended to make the payment by that deadline.
Bondholders could choose to request that all principle and interest be paid on the notes -- for the $200 million of 8-5/8% senior notes due 2003 -- or they could decide to do nothing about the missed payment at this time.
Financial advisers to the informal committee of bondholders could not be reached for comment.
"The ball is in the bondholders' court," said John Wlodek, a high-yield analyst with Imperial Capital, Beverly Hills, Calif. "They have to decide whether to accelerate their rights and call for immediate payment.
"On the other hand, you don't want to throw the company into a freefall bankruptcy. Bondholders realize that the value of the bonds depends on the health of the business. If you throw it into bankruptcy without an organized plan it can have a negative effect on customer traffic and trade creditor support."
Wlodek said that the best solution for all stakeholders is "to have closed-door meetings and come up with an acceptable restructuring plan that would not disrupt business operations."
Ted Bernstein, a high-yield securities analyst with Grantchester Securities, New York, said that bondholders do not want to force a prolonged, lengthy Chapter 11. "Accelerating the entire obligation is at this point probably detrimental to the entire process," he said. "What is preferable is for all parties to come up with a plan for a prepackaged bankruptcy."
Marc Jampole, Penn Traffic spokesman, declined to comment on what the bondholders will decide.
Asked about the likelihood that the company's restructuring would result in a Chapter 11 bankruptcy filing, Jampole said, "There's consensual agreement to restructure. The form of it may be a prepackaged Chapter 11. There's a good possibility."
As previously reported, the company is in discussions with bondholders on the terms of its restructuring. The intention of the restructuring is to convert a substantial portion of its $1.13 billion of senior and subordinated notes to equity. The company has said that any restructuring proposal it makes will provide for payment in full of all obligations to trade creditors that continue to be supportive with customary trade credit and terms.
"So far, our trade creditors have responded very favorably to our announcement that we will provide payment in full," Gary D. Hirsch, chairman of Penn Traffic, said last week. "There has been no change in our trade relations since the announcement."
Bernstein said the restructuring will result in some form of Chapter 11. "At the end of the day this company is going into Chapter 11, either preplanned or prepacked or freefall," he said. "That's the bottom line. The sooner this gets into bankruptcy court in the form of a prepackaged Chapter 11, the better. Otherwise, asset values deteriorate."