VICTORY CEO DETAILS PATH TO CHAPTER 11

ELLIOT ZWIEBACH

UTICA, N.Y. -- Failure to meet a mid-September bond debt payment ultimately led Victory Markets and New Almacs into bankruptcy protection, Clark Ogle, Victory's president and chief executive officer, told SN last week.

According to Ogle, the missed Sept. 15 debt payment triggered a nervous reaction among vendors, which in turn prompted the two chains to file Chapter 11 to protect their assets and customers.

Ogle said the core group of stores is "very profitable on the operating line, but not profitable enough to service the bond debt and other debt."

A turnaround specialist, Ogle joined Victory here the day before the filing, succeeding Aaron Malinsky, one of the chain's primary investors, who remains as a consultant. Since the acquisition of Almacs Inc. by Victory last November, the New Almacs chain has had a management contract with Victory, with Victory's management overseeing both companies.

Victory and New Almacs, along with a handful of subsidiaries, filed separately for Chapter 11 protection, a spokesman told SN. Consequently, it is possible that the course of each company's bankruptcy could be different from the other, he noted.

A preliminary hearing on the bankruptcy case was held here last week. See related story on Page 46.) The bankruptcy involves 84 stores: 57 Victory Markets, operating in northern and central New York state under the name Great American Food Stores, and 27 Almacs stores in Rhode Island and southern Massachusetts,

which were acquired in August 1994 following 14 months operating under Chapter 11 protection.

According to Ogle, the Great American units "are doing very well" and the Almacs "are good stores with a lot of underlying value, and our intention is to try to realize that value."

He declined to say whether that implies the companies will try to sell some of the New England stores.

He said the only store set for closing -- and one that was scheduled to close before the Chapter 11 filing -- is a Great American unit in New Paltz, N.Y., which he said has been operating on a month-to-month lease.

At a court hearing Sept. 22, the companies sought and received authorization from their two primary wholesale suppliers -- Supervalu, Minneapolis, and C&S Wholesale Grocers, Brattleboro, Vt. -- to continue to ship goods under normal terms under post-petition protection.

When the companies decided not to make the Sept. 15 payment, "our bondholders said they were willing to negotiate a settlement, but the vendors told us they saw our inability to make the payment as the end, and they started to panic," Ogle said.

"New Almacs had gone through a bankruptcy before [prior to being acquired by Victory], and some vendors had been nervous [about it] for some time and never really recovered.

"Then, when we announced we could not meet our debt payment obligation due on Sept. 15, it set off those concerns again. Some vendors said they were not willing to work with us, and some tried to shorten their terms. So, to prevent others from doing the same, we filed for Chapter 11."

The next step now, Ogle said, "is to go through a stabilizing period to get direct-store-delivery vendors to settle down and be more rational while we look for ways to maximize the value of the companies."

He declined to specify what options for maximizing the companies' value might be under consideration.

Regarding the length of the Chapter 11, "shorter is better than longer," Ogle said, "and we will do all we can to expedite the process. "We anticipate that we will be able to work out a solution with bondholders, and we have a high level of expectation in that area.

"We've also been able to tell vendors that Supervalu and C&S have made commitments to us. But a small number of companies, including a mix of large and small vendors, have declined to make similar commitments."

Malinsky declined to speak with SN for this article.

The decision to hire Ogle to succeed Malinsky "represented a change in the company's focus," Ogle said, "given my background in turnaround situations."

Ogle said his most recent turnaround involved Consumers Markets, Springfield, Mo., where he served as chairman and CEO from July 1993 to February 1994.

Although Ogle was not specific about the challenges there, he told SN, "I accomplished what I had to do there."

At the time he took on the Consumers post he was also completing the liquidation of Peter J. Schmitt Co., West Seneca, N.Y., where he was hired as chairman, president and CEO in January 1992.

"I spent eight weeks seeking solutions to the serious problems I encountered, including the loss of $1 million a month in operating profits in the Ohio division," Ogle recalled. "But I couldn't resolve the problems without a Chapter 11 filing.

"Once we'd filed, I became aware that the company as a whole was worth $45 million but the components were worth more than $90 million, and as the fiduciary representative for the banks, the unsecured creditors and the courts, I had to maximize the value there, which we did through liquidation."

Earlier in his career, Ogle was president and CEO of Affiliated Food Stores, Keller, Texas, which filed for Chapter 11 protection several months after he left in 1990. The wholesaler emerged from that Chapter 11 but subsequently refiled and ultimately liquidated in 1993.