Bashas' Goes Into Chapter 11

ELLIOT ZWIEBACH

CHANDLER, Ariz. — Bashas' here said last week it believes eliminating underperforming stores and investing in locations with stronger returns will enable it to be more competitive in a marketplace dominated by national chains.

The family-owned company arranged for $45 million in debtor-in-possession financing before filing a voluntary petition for Chapter 11 bankruptcy protection last week and, as a result, expects to emerge during the first quarter of 2010 in a better financial position, Mike Proulx, president and chief operating officer, told SN.

“That DIP financing is something other Arizona supermarket companies, including Abco Markets, Megafoods and Southwest Supermarkets, failed to do before filing, and it made the road much tougher — and ultimately impossible — for them. But with the financing in place for the next two years, it will enable us to deal with operating expenses going forward throughout the restructuring.”

In a letter to vendors, Proulx said, “We are not going anywhere. We will emerge with a significantly improved balance sheet that will allow us to be a good business partner to you for many years to come.”

With the debtor-in-possession loan commitment, “we're creating a full re-payment plan, and we intend to pay all of our vendors [and] to honor all existing agreements.

“We'll be asking the court to honor all customer credits, adjustments and pre-payments [and] filing motions seeking authority that will ensure the company's transition is as smooth as possible.”

Grace Financing Group, a company that has done business with the Basha family for years, will provide the DIP funding, Proulx said.

Bashas' operates 158 stores under a variety of banners and formats, with 2008 sales estimated at $2 billion. The company closed five stores earlier this year and laid off an unspecified number of administrative staffers. With the shutdown of 10 more stores scheduled for this week, Proulx estimated the total number of layoffs at about 1,000.

“There could be more store closings and more layoffs — all designed to strengthen the balance sheet and our cash flow,” he told SN.“But our goal is to preserve as many jobs as possible and remain a strong company going forward.”

Proulx said that three primary reasons pushed the company to file for Chapter 11: “the national credit crisis, which caused credit markets to tighten; the stagnation of growth in Arizona, which resulted in over-storing among grocery operators; and the ongoing attacks by the international and local United Food and Commercial Workers Union, which caused great disruptions to our business.”

The UFCW, which has been engaged in a series of disputes with the retailer, said in a statement it “stands ready to engage in constructive dialogue with the company.”

Basha's decision to file for Chapter 11 protection came after 12 to 18 months of discussions by the company's directors, Proulx said, “during which they considered all options.

“We've been working with our lenders to get agreeable terms on our revolving credit lines, and all payments are current,” he added.

Proulx said the post-emergence leaner operating structure and the chain's long-term reputation in Arizona should enable it to compete better “by allowing us to put our resources and energy into locations that are producing, with the opportunity to grow more.

“Arizona has always been a hotly contested marketing environment, and our success has come from our better understanding of the landscape and adjusting and being sensible and offering our customers value, quality and service.

“What's not working is that we've invested in green locations where the adage ‘build it and they will come’ no longer works. By shedding those and eliminating that bleed-off of overhead and by investing in locations that are generating strong results, we will be able to compete better.”

When Bashas' emerges from Chapter 11, it will be on sounder ground financially but essentially unchanged, he said. “We are not planning to sell the company. We're not interested in selling, not interested in closing down or liquidating. Our goal is to continue our 77-year legacy going forward,” he told SN.

Proulx said he does not anticipate the company will alter the promotional pricing strategy it has historically utilized. “But with rising unemployment and other economic uncertainties, our aim will be to help consumers stretch their grocery dollars,” he said.

“We've already lowered 10,000 prices at Bashas' stores; our Food City stores operate on an everyday-low-price program; and even AJ's Fine Foods, which never had sales, has them now.”

In a letter to employees, Proulx said, “When we come out of this … we're going to look back with satisfaction on what we've accomplished. We'll be able to say that we took control of the situation, we made a voluntary decision and emerged as a stronger player.”