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Penn Files Bankruptcy Yet Again

Penn Traffic Co. filed for Chapter 11 bankruptcy protection last week, just four years after emerging from a previous bankruptcy filing and 10 years after its first trip to bankruptcy court in 1999. This time the company, based here, said it would seek a buyer for its assets, although some were skeptical that the company could be sold as a whole entity and would instead be broken up

SYRACUSE, N.Y. — Penn Traffic Co. filed for Chapter 11 bankruptcy protection last week, just four years after emerging from a previous bankruptcy filing and 10 years after its first trip to bankruptcy court in 1999.

This time the company, based here, said it would seek a buyer for its assets, although some were skeptical that the company could be sold as a whole entity and would instead be broken up into smaller parts.

Penn Traffic has already whittled down its store base to fewer than 80 locations — compared with the 212 it operated when it last filed bankruptcy in 2003 — and sold off its distribution business to supplier C&S Wholesale, Keene, N.H.

Following the sale of that business, some observers speculated that Penn Traffic was positioning itself for a sale, possibly to Tops Friendly Markets, based in Williamsville, N.Y., which operates contiguously with Penn Traffic, with little overlap.

A Tops spokeswoman last week declined to comment on its potential interest in Penn Traffic. The two companies are believed to have explored a merger in 2008 but were unable to complete a deal.

Burt Flickinger, managing director, Strategic Resource Group, New York, which has worked as an advisor on several industry mergers and acquisitions in the Northeast, said it is possible that a financial investor could emerge that would be interested in a core group of Penn Traffic locations.

“They could reject two to three dozen leases and still be a viable company, with good leadership and a recapitalization,” he told SN.

Flickinger suggested that Penn Traffic's effort to sell itself could become more like a liquidation, with several strategic buyers in the region picking up various locations.

In the meantime, Penn Traffic said it planned to continue operating its remaining stores and was seeking a financial arrangement with senior secured lenders that would allow it to do so.

Earlier this month the company said it had engaged a crisis management firm, Conway Del Genio Gries & Co., and installed a representative of that firm, Ronald F. Stengel, as its chief restructuring officer. At that time the company said its lenders had agreed not to proceed with remedies related to a credit default until Nov. 25.

In the bankruptcy filing last week, Penn Traffic listed assets totaling $150.4 million and debts totaling $136.9 million. Among the largest unsecured claimants are Local 23 Health Fund, Canonsburg, Pa., owed $518,996.75; and ABC Refrigeration, East Syracuse, N.Y., owed $405,216.79.

The filing also said Penn Traffic has retained law firm Haynes and Boone as bankruptcy counsel for the case.

Observers said the filing appeared to come at an unusual time, with the busy holiday season just ahead.

Another observer, who asked not to be identified, said the current economic environment might have pressured lenders into seeking a speedy solution to Penn Traffic's problems, rather than waiting for a potential turnaround to materialize.

“The markets are opening up now, so why not try to sell it to someone who has access to capital?” the observer said.

“The lenders might not have been interested in subsidizing a turnaround that may or may not occur.”

In September, Penn Traffic reported a loss of $7.3 million for the second quarter, and said same-store sales fell 6.8%. Sales for the quarter totaled $208.8 million, down 8.6%.