Bashas' Details Repayment Plan

ELLIOT ZWIEBACH

CHANDLER, Ariz. — Bashas' here could find itself by week's end with a date to emerge from Chapter 11.

At a confirmation hearing set for Thursday in U.S. Bankruptcy Court in Phoenix, Judge James M. Marlar could approve a proposed reorganization plan that has gotten the approval from unsecured creditors and others, even though the chain has not reached agreement with its secured lenders, including a banking group and other noteholders, the chain's bankruptcy attorney told SN last week.

The attorney, Michael McGrath, a partner in the firm of Tucson-based Mesch, Clark & Rothschild, said he believes the judge will confirm the company's plan — although he has the option to reject the plan and send all parties back to square one.

“Since the bankruptcy filing last July [2009], Bashas' had amassed $105 million in cash through the end of May after paying all its bills, and it is making a profit, and we are prepared to make full repayment to all creditors,” McGrath told SN last week.

Marlar in late June ruled against a proposal by the secured lender group to reject the chain's assumption of 118 operating leases, whose terms it has renegotiated. “That ruling suggests why I'm optimistic,” McGrath said.

He said the reorganization plan has the approval of the chain's equity owners — nine members of the Basha family — as well as from all unsecured lenders, who as a group are owed approximately $60 million, including tax claimants; all secured and unsecured vendors; unsecured non-vendor creditors; a convenience class of creditors (who are owed $5,000 or less); and retirement claimants.

Those opposing the plan are a bank group, consisting of Wells Fargo Bank, Bank of America and Compass Bank, which is owed approximately $100 million; a noteholders group, led by Prudential Life Insurance Co. and including other investors, which is owed approximately $87 million; and a trio of litigation claimants (three individuals who are seeking to sue the company on behalf of employees — a suit McGrath said has not been certified by the courts).

A spokesman for the bank group declined comment; a spokesman for the noteholders could not be reached for comment.

According to McGrath, the reorganization plan the judge will consider Thursday promises to pay back all creditors within three years, with payments beginning later this year or in 2011 or 2012, depending on interest rates — a modification from the original plan, which involved a five-year payback.

For a brief period in May, Bashas' was proposing to repay all lenders immediately in cash in the full amounts owed following an offer by two lending institutions to help the company refinance $250 million in debt; however, when problems in the European stock market impacted the U.S. stock market negatively and interest rates rose, the offer was withdrawn.

The three-year payback plan incorporates higher interest rates and an amortization schedule shortened from 20 years to 12 years, McGrath said.

The plan also calls for appointment of an ombudsman as an independent third party to serve as a liaison with trade creditors to make sure they are being paid back on schedule, he added.

Asked about comments by secured lenders that the three-year repayment schedule could force Bashas' back into bankruptcy in three years, McGrath said, “That's purely a litigation position in my mind.”

He said the secured lenders have proposed some changes in the reorganization plan.