JITNEY FILES FOR CHAPTER 11; IS NEGOTIATING CREDIT TERMS

ELLIOT ZWIEBACH

JACKSON, Miss. -- Jitney-Jungle Stores of America here bit the bullet last week and filed a voluntary petition for financial protection under Chapter 11 of the U.S. Bankruptcy Code.

"Everyone [at the company] knew we needed to take this course," Ronald Johnson, chairman and chief executive officer, told SN last week.

Johnson said Jitney officials began immediately to meet with vendor representatives last week to establish credit terms during the bankruptcy and notified bondholders that they should begin organizing to help restructure the company.

He said it could take up to a year for the company and its creditors to work through the bankruptcy, although he said he hopes the process won't follow the model of the ongoing situation at Bruno's, Birmingham, Ala. "It's taken more than a year for Bruno's to resolve its bankruptcy, and hopefully that example has taught people a valuable lesson and will result in an effort that's a lot more aggressive to get this settled," he said.

Bruno's has been operating as a debtor-in-possession since filing for Chapter 11 protection Feb. 2, 1998. The company is scheduled to return to court in late December for a hearing to confirm its proposed restructuring. (See story, Page 6.)

Jitney secured a debtor-in-possession financing commitment of $260 million last week from a consortium of banks. The money will be used to retire its existing revolving credit facility of $150 million and "enhance its liquidity in order to meet all inventory needs and fulfill future obligations associated with operating its business," the company said in a prepared statement last week.

Johnson told SN he will continue to oversee operations, while Michael Feder will become the point man for the restructuring process, with the title of chief restructuring officer and chief administrative officer. Feder is a senior associate in the Chicago office of Jay Alix & Associates, Southfield, Mich., a crisis-management and corporate-turnaround company hired by Jitney a month ago.

Johnson said it is too early in the process to discuss the timing for meetings with creditors representing vendors, banks and bondholders. However, he said, the company met last Tuesday, the same day it filed, with the National Credit Manufacturers Association, which represents 180 vendors, and also sent notices to all creditors giving them a phone number to call to negotiate terms with Jitney "as quickly as possible, to get everyone back in business."

"A lot of vendors are shipping us product," he told SN, "but the money owed on past bills will have to be worked out in the courts. However, the debtor-in-possession loan gives us the ability to run our business on a normal basis, and if vendors give us terms, we will have the liquidity to work through the bankruptcy process."

According to Ted Bernstein, a high-yield securities analyst with Grantchester Securities, New York, a bankruptcy filing seemed unlikely for Jitney as recently as eight months ago, "but competition in the Southeast is brutal, and it took a bigger toll more quickly than anyone had anticipated. Combined with the difficulties Jitney has had integrating Delchamps, vendors got progressively nervous, and several refused to ship product for fear they wouldn't get paid.

"So the debtor-in-possession financing should make vendors feel more comfortable, letting them know they will be paid, and Jitney will now be able to stock its shelves during the holiday season."

John Wlodek, senior vice president of Imperial Capital, Beverly Hills, Calif., said the whole market "is sitting on pins and needles" waiting for Jitney to issue its third-quarter results for the period ended Sept. 11. The results are scheduled to be released next week.

"It seems vendors with access to those numbers have tightened their credit terms, and banks and senior lenders who have also apparently seen the numbers have also gotten nervous, and those feelings seem to have found their way to the bond market, where Jitney's bonds have traded down 50 points over the last few weeks," Wlodek said.

"So it would seem the third quarter was a whirlwind of activity for Jitney's creditors and for the company itself, since by filing, the company admits there is no stabilization of financial performance on the near-term horizon."

Wlodek said he expects Jitney to emerge from Chapter 11 "a shadow of its former self, with fewer stores and lower operating cash flow."

Johnson told SN he attributes Jitney's need to file for Chapter 11 protection to three factors:

Jitney's debt, including $200 million in senior notes from its leveraged buyout in 1996 and an additional $200 million in senior subordinated notes from its 1997 acquisition of Delchamps, Mobile, Ala., plus $70 million a year in interest payments.

Competitive openings, which totalled 94 over the past two years, adding approximately 8 million square feet of new selling space in Jitney's operating area, compared with a total of 7.7 million square feet of selling space at all 196 Jitney stores.

A tightening of vendor terms over the last nine months, "which put a cash drain on us that made it tough to accommodate the trade, and we simply ran out of time."

According to Johnson, the vendor concerns were a result of Jitney's financial and competitive challenges "and what's happening in the industry. The fact that Bruno's filed for Chapter 11 and Schwegmann's [in New Orleans] went out of business weighed heavily in this region and put more pressure on vendors to be super-cautious."

The situation was further exacerbated, Johnson said, "when Jitney made statements last year that we couldn't earn ourselves out of debt," plus changes in top management that saw the resignations of Michael E. Julian as chairman and CEO in June; of Rick Coleman as chief financial officer, also in June; and of Barry Cannada as chief administrative officer earlier this month.

Johnson said the bankruptcy process "is all too familiar to me," having been involved with two previous bankruptcies: taking over as chairman of Kash n' Karry Food Stores, Tampa, Fla., in 1995, the day the company emerged from Chapter 11; and presiding over Farm Fresh, Norfolk, Va., during its pre-packaged Chapter 11 and ultimate sale to Richfood Holdings, Richmond, Va., in 1998.