HOMELAND IN CHAPTER 11, NOT SURE OF EXIT TIMING

ELLIOT ZWIEBACH

OKLAHOMA CITY -- Homeland Stores here and its parent company, Homeland Holding Corp., said last week they filed for Chapter 11 reorganization after they were unable to reach an accord with their current lending institutions on a portion of their financing.

It is the company's second bankruptcy filing in five years. Homeland filed a pre-arranged Chapter 11 reorganization in mid-1996.

Homeland said the latest filing will enable it to refinance its bank and other debt to provide sufficient funding for its ongoing operations. However, the company said it is not sure how long the bankruptcy will last.

David C. Clark, chairman, president and chief executive officer, told SN the plan of reorganization that eventually emerges will enable Homeland to be stronger financially, "with the ability to make our position in the marketplace better than it's been for the past six months.

"We believe we can coexist with Wal-Mart and other competitors, and the reorganization will provide the capital to improve our facilities and to improve perishables and customer service -- all the things we've been about. But it will make it easier to fill our goal of being faster, fresher and better."

Clark said he is not sure if the reorganization will result in any store closings. "That's hard to predict," he said. "In this situation it would be prudent to look at every asset, and if we decide an asset is not contributing to our future or to cash flow, we would certainly close or sell it."

Ted Bernstein, a high-yield securities analyst with Dresdner Kleinwort Wasserstein-Grantchester, New York, said he expects Homeland to emerge successfully, "but the competitive market will still be tough. The company will presumably have less leverage and therefore more flexibility to compete, but that's just incremental when you're going up against competitors like Wal-Mart and Albertson's."

Homeland said last week it has arranged for interim financing through a consortium of lenders -- National Bank of Canada, IBJ Schroeder and Heller Financial -- and from Associated Wholesale Grocers, Kansas City, Kan., its primary wholesaler.

It said it has also received a $48 million debtor-in-possession financing commitment through Fleet Retail Finance, Back Bay Capital Funding and AWG.

"The interim financing will ensure that we are in a position to fulfill our obligations during the proceedings and operate our stores without interruption," Clark said in a prepared statement.

"Our stores are fully stocked and ready to serve our customers. The company will conduct business as usual throughout the process and remains optimistic it will emerge with a renewed ability to compete in the marketplace."

To help the company execute its financial and business strategies, Homeland said it has hired McDonald Investments, Cleveland, a full-service business investment and financial consulting firm with experience in refinancing and the raising of capital, and RCP Merchant Banking, which specializes in Chapter 11 reorganization strategic matters.

Clark told SN the filing was not related to any inability to meet its financial covenants. "The No. 1 issue that led to the filing was an inability to reach an accord with our lenders on a portion of the financing that had to do with the terms and conditions of our revolving credit agreement and our term loan, which forced us to look for refinancing in the marketplace.

"To position the company to compete over the long term in the manner we would all like requires refinancing of our debt and working capital," Clark said. "This move is an important step toward positioning Homeland to better achieve its goals without affecting service to our customers."

Homeland operates 78 stores in Oklahoma, the Texas Panhandle and southern Kansas. Sales were up 7.4% to $600.1 million for the year ended Dec. 30, but the company had a net loss of $5.9 million, which it said reflected the impact of a labor dispute between AWG and the Teamsters union, and a one-time charge of $4.2 million related to the closing of seven stores.

For the first quarter ended March 24, sales were down 8.1% to $125.5 million, comparable store sales declined 7.8%, net income fell 70.5% to $122,000 and operating cash flow was down 5.4% to $5.2 million.

The company said it plans to report financial results later this week for the second quarter ended June 16. Clark said the company was originally scheduled to release those results last week but sought a delay while it filed Chapter 11.

Homeland was established in 1987 when Safeway Stores, predecessor of the current Safeway, sold its Oklahoma division for $165 million to Clayton & Dubilier, New York-based investors.

The company ran into a cash crunch in 1995 and decided to sell its distribution center here and 29 stores to AWG. As fixed costs continued to proliferate, the company went through the pre-arranged Chapter 11 restructuring in mid-1996.

The company began growing through acquisitions in the late 1990s, adding 22 stores in four separate transactions in 1997 and 1998. Last January Homeland opted to close seven stores.

It also said at that time it did not contemplate any sort of long-term restructuring.

Homeland was delisted by Nasdaq in March, and its stock is currently traded on the Over-the-Counter Bulletin Board.