Bi-Lo Eyes Bankruptcy Exit With Fresh Capital, Debt

JON SPRINGER

GREENVILLE, S.C. — Bi-Lo will likely emerge from Chapter 11 bankruptcy protection under the same owner and executives it entered with almost a year ago.

The retailer filed an amended plan of reorganization in federal court this month funded by a $150 million equity investment by its owner, the Dallas-based private equity firm Lone Star Funds, a $200 million new term loan and a working capital facility of $150 million. The plan would pay previous lenders about $260 million — about 94.5% of their claims, Bi-Lo said — while unsecured creditors would be paid back at a rate between 16.6 and 47.1 cents on the dollar.

Sources last week told SN that Bi-Lo could emerge from Chapter 11 by May 1. It filed for protection last March 23. The plan envisions Randall Onstead continuing as Bi-Lo's chairman and Michael Byers as its chief executive. Both were in place when Bi-Lo filed for Chapter 11 protection last year, and have engaged in pricing and merchandising programs designed to increase falling sales.

A disclosure statement filed with the court details a series of agreements forged to settle debts and untangle relationships between Bi-Lo, its suppliers and its former owners. The latter group, Ahold USA, sold Bi-Lo to Lone Star in 2005 and wound up a large creditor as a result of guarantees it held on the majority of Bi-Lo's store properties.

Those groups reached a resolution when Lone Star agreed to loan Ahold $130 million toward the purchase of Lone Star's old term notes. That agreement, which was forged last month, led to the withdrawal of a competing reorganization plan filed by creditors and Bi-Lo's former term-note holders.

The reorganization plan also calls for an amended supply deal with C&S Wholesale Grocers that would pay the supplier $15 million but strike its previously held first right to negotiate for the acquisition of Bi-Lo stores. The supplier also agreed to waive certain inflation-related charges as well as sublease costs, which combined would save the retailer $5.7 million annually. Bi-Lo noted that the C&S agreement as originally drawn up covered more stores and a larger geographic footprint than the company currently serves, but that certain charges were fixed regardless of volume.

Deteriorating performance while it attempted to sell the chain in 2007 and 2008 also helped to trigger the bankruptcy, Bi-Lo said. An offer last fall by Delhaize's Food Lion chain to buy most of Bi-Lo's stores during the bankruptcy proceedings was scuttled, however, when creditors advanced a competing plan of reorganization. Delhaize's offer was also contingent upon an “acceptable resolution” to the C&S contract. Delhaize officials have said they would continue to look at Bi-Lo as a potential acquisition.

Some claims including those emerging from the bankruptcy and liquidation of Bi-Lo's former sister chain, Bruno's Supermarkets, remain in dispute. The trustee in the latter's bankruptcy, as well as a pension fund affiliated with former union workers of Bruno's, have both filed claims against Bi-Lo.