Mi Pueblo Food Centers, San Jose, Calif., said Wednesday that unless the U.S. bankruptcy court approves its reorganization plan before the end of May, the company might have to liquidate.
According to a court filing, the 21-store chain said its reorganization plan, including capital infusions by a third party, "is currrently the best measure of [its] value and provides … the best chances of a successful reorganization."
Mi Pueblo said it hopes to obtain approval for the plan on May 14, which involves$56 million in exit financing from a private equity firm in return for a 50% stake in the company.
Complicating the timing is a requirement that the chain post a $7.5-million letter-of-credit to support its worker’s compensation policy by June.
If Mi Pueblo is unable to acquire sufficient funds to post the letter-of-credit, it said in court filings, then it will incur additional legal and other administrative costs that could result in "a cessation of operations that will necessarily occur after June 1."
"Any delay in the consummation of the [reorganization] plan may have a negative impact on the operations and financial performance of Mi Pueblo, including higher administrative costs and its inability to meet certain income forecasts. The alternative to the plan is a liquidation … [in which case] the recovery to creditors is very uncertain but is almost certainly worse than that contemplated in the proposed plan."
According to a Mi Puelblo spokeswoman, "The plan submitted to the federal bankruptcy court positions Mi Pueblo well to move forward and to refocus on its core mission — to provide our customers with authentic products and services … While there is still work to accomplish in the near term, we remain very confident we will emerge from bankruptcy as a stronger and better capitalized company."
The third party committed to helping Mi Pueblo is Victory Park Capital, a Chicago-based firm that invests in middle-market companies, which the court document said is offering enough financing to allow the chain to erase its debts and continue operations.
Mi Pueblo filed for Chapter 11 bankruptcy in July, citing a dispute with Wells Fargo, its primary lender, which had reportedly sought to change the terms of its loans to the chain after it became concerned about the chain's debt-to-credit ratio and its forecast on revenues.
The chain spokeswoman said at the time, "It's not an issue with payroll, and it's not an issue with sales. Mi Pueblo is dealing with a very difficult creditor. We're at an impasse, and we're seeking protection from the court. We're working very, very hard to reorganize and come out stronger."
The bankruptcy also followed by several months an audit of the chain’s employees by the Immigration and Customs Enforcement Service , which resulted in the company having the let 80% of its work force go.
|Suggested Categories||More from Supermarketnews|