Southeastern Grocers Restructures in Chapter 11; 94 Stores to Close

Southeastern Grocers, struggling to overcome nearly $1 billion in debt while in the midst of a strategic turnaround, said late Thursday it had reached an agreement with a group of its lenders on a financial restructuring and would be closing 94 underperforming stores.

The Jacksonville, Fla.-based parent of the Winn-Dixie, Harveys, Bi-Lo and Fresco Y Mas chains said it would do both under a prepackaged Chapter 11 bankruptcy it intends to file by the end of the month in Delaware and complete in 90 days. Chapter 11 protection would allow the company to exit leases of its unwanted stores while it solicits the support of its lenders for the restructuring plan.

Southeastern characterized the restructuring as an opportunity to continue the work it began toward modernizing its fleet, which will include 582 stores following the closures. CEO Anthony Hucker said the chain had a three-year plan to create “stunning, remodeled stores in a significant portion of our footprint. This revitalization will also provide our customers with fresh, new concepts and products to cater to the local tastes and needs of the neighborhoods we serve.”

The restructuring involves refinancing its 2014 revolving credit and senior secured notes due in February 2019, as well as converting $470 million in debts due in September to equity. Southeastern said it had received a commitment for financing in the form of a senior secured six-year term loan facility in the original principal amount of $525 million, and an asset-based lending revolving credit facility.

Related:Southeastern Grocers Mulls Chapter 11 as Debts Come Due

The restructuring would decrease overall debt levels by more than $500 million and maintain the liquidity position. The reduction of debt will also pave the way for reduced interest expenses to enable SEG to invest more cash back into the business via increased capital expenditures for remodels and new stores.  

“Southeastern Grocers is faced with a critical milestone in its transformation, and we have made choices for our future and long-term growth potential. We conducted a thorough review of our strategic options and determined that this financial restructuring is in the best interests of our associates, customers, supplier partners and the communities in which we serve,” Hucker said. “Southeastern Grocers is a strong, viable business and is building momentum with robust performance and new store concepts that resonate with our associates, customers and communities. This course of action enables us to continue writing the story for our company and our iconic, heritage banners in the Southeast.”

Southeastern holders of general unsecured claims, including suppliers, contract counter parties and all other trade creditors would receive payment in full on account of existing obligations in the ordinary course of business.

The closures could be rough on some of Southeastern's landlords. Wheeler Real Estate Investment Trust, a Virginia Beach, Va.-based shopping center owner, said it had 19 leases with Southeastern and that it has been in discussion with the company to mitigate the impact of the closures in recent weeks, including renegotiating leases and "recapturing" four sites to lease to other supermarkets. That could present some opportunity for food retailers interested in expanding in the Southeast. 

The holder of the company’s existing equity will receive a five-year warrant (subject to dilution) and “certain global settlement consideration.”

Southeastern is owned by the private equity firm Lone Star Partners, which created the company five years ago when the Bi-Lo chain it controlled acquired larger rival Winn-Dixie. Both Bi-Lo and Winn-Dixie had been through previous rounds in Chapter 11.

The former, acquired by Lone Star from Ahold in 2005, filed in 2009 for a financial restructuring due to high debts. Winn-Dixie filed in 2005 to address operational issues, closing hundreds of stores.

Lone Star has come under scrutiny for profiting off debt placed on the company it used to pay itself dividends and management fees while the chain has struggled. A plan to exit through a public stock offering in 2013 failed.

Following the cancellation of the IPO in 2014, Lone Star appointed international turnaround specialist Ian McLeod as CEO. McLeod left the company in June to be closer to his wife’s family, taking the CEO job at Hong Kong chain Dairy Farm International. Hucker, the former Walmart and Ahold executive who was serving as COO, took over.

McLeod and Hucker led an effort at Southeastern to lower prices, build private brands and renovate and rebanner dozens of stores to better suit neighborhoods, including converting a number of stores serving lower-income areas to the Harveys banner and introducing a Hispanic-focused banner called Fresco Y Mas to take over Winn-Dixie stores serving Hispanic communities in Florida.

Most recently, Southeastern sold 15 stores in Louisiana in separate deals to Brookshire Grocery and Shoppers Value.

The closures announced late Thursday include 45 Winn-Dixie stores, 22 Bi-Lo stores, 26 Harveys locations and one Fresco Y Mas store. A full list of the locations is here. Thirty-five of the closing stores are in Florida, 19 are in South Carolina, 19 are in Georgia, nine are in North Carolina, and one each in Louisiana and Mississippi.