Bi-Lo Set to Exit Chapter 11

JON SPRINGER

GREENVILLE, S.C. — Bi-Lo's emergence from Chapter 11 protection — expected at any time now that the retailer has received court approval of its reorganization plans — should buy it time to build on the momentum of an ongoing turnaround and better position it for future consolidation, industry observers told SN.

Bi-Lo, which admitted its bankruptcy was precipitated in part by a failure to consummate a sale, steered away from a $425 million acquisition offer from rival Food Lion during the bankruptcy process. It's challenge now could be to attract a better offer down the road.

“This should buy them a couple of years,” Neil Stern, senior partner at McMillan Doolittle, Chicago, told SN last week. “The nice thing for them is, if Delhaize was interested before, they would be interested again, and if they can't play this out independently, that option still exists. There's no reason their stores wouldn't still be attractive to Delhaize a year or two from now.”

A U.S. Bankruptcy judge in South Carolina confirmed Bi-Lo's plan of reorganization late last month. It was unclear last week when Bi-Lo would officially emerge, although sources said they expected it would be this month. Bi-Lo filed for protection from creditors last March, citing an inability to come to terms with lenders on a new financing package as well as a need to reduce expenses stemming from its supply contract and some unproductive stores. It also noted its performance deteriorated during an unsuccessful attempt to sell itself in 2008.

Observers described Bi-Lo's Chapter 11 case as contentious, with constituencies slow to come to agreement on terms of a settlement. However, emerging should remove a distraction and allow Bi-Lo to focus solely on a “back to basics” strategy that improved the company's underlying performance throughout the length of the case, said Tim Carroll, a principal with William Blair & Co., Chicago, an advisor to Bi-Lo.

Investment firm Lone Star Holdings, which owns Bi-Lo, sponsored its reorganization plan behind a $150 million new equity investment.

“It's a real success story,” Carroll said in an interview with SN. “Last year when nearly everybody had negative comps, they had positive 3.3% comps, and year to date they're over 4%. This was a very difficult case, but this company performed extremely well despite the massive distraction of the Chapter 11 process. I can't wait to see what they do when they focus 100% of their efforts on just running stores.”

According to Carroll, key to Bi-Lo's improvement has been merchandising efforts built around the chain's core customer.

“Bi-Lo at one point was extremely well-connected with the consumer, and they got away from that,” he said. “They got too much into selling what [vendors] wanted to sell, rather than selling what people wanted to buy.”

Changes in terms of its supply contract with C&S Wholesale Grocers, as well as closing several unproductive and/or dark real estate sites, both accomplished during Chapter 11, should also help the company financially. Bi-Lo should emerge from Chapter 11 with 207 stores — eight fewer than it had when it filed.

In addition to Bi-Lo's investment, the reorganization plan calls for $200 million in new financing from Credit Suisse and a $150 million revolving credit facility from GE Capital.