Fairway files 'prepackaged' Chapter 11

The parent company of iconic New York grocery chain Fairway Market has filed a "prepackaged" Chapter 11 bankruptcy restructuring Tuesday whereby lenders have agreed to exchange existing debt for new equity and debt in a reorganized company.

Fairway, suffering under heavy debts and competition from a variety of formats, said it filed the plan after an extensive search for a buyer or other substantial investment was unsuccessful.

Current lenders have also agreed to provide $55 million in debtor-in-possession and exit financing.

Fairway said that facility would allow for holders of general unsecured claims, including suppliers, employees, unions and other trade creditors to receive payment in full of existing obligations in the ordinary course of business. The five collective bargaining agreements between Fairway and unions will be assumed and remain in effect, and store leases would be assumed. Fairway's current management would remain in place.

Fairway said its stock would be canceled and holders would get no distribution. Following emergence it would operate as a private company.

In a disclosure statement filed in U.S. Bankruptcy Court, Fairway said the reorganization would "right-size its debt and set Fairway on a path to emerge from bankruptcy as a leaner, healthier enterprise that is positioned to thrive and grow its iconic New York City brand."

In an open letter to vendors, CEO Jack Murphy emphasized that its debts would be paid, and urged support.

"As we work together to manage through this, I want to be very clear that Fairway is open for business and we expect to continue normal operations throughout this process. With your support our customers can be confident that we intend to continue to deliver the BEST FOOD in the New York City area."

Fairway stores are known for a variety of unique offerings and conventional grocery departments in stores that emphasize fresh foods and service. In a disclosure statement the company said competition from specialty natural and organic stores many in the same city neighborhoods, have hurt sales, as have competition from online retailers and conventional stores.