Fresh & Easy files for Chapter 11 protection

January 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

In November, grocery chain Fresh & Easy LLC filed for Chapter 11 protection for the second time in two years.

According to paperwork filed at the US bankruptcy court in Wilmington, Delaware, Fresh & Easy listed assets of between $10m and $50m and debts in the $100m to $500m range. The company’s bankruptcy filing listed 30 creditors with the largest unsettled claims, ranging from around $230,000 to $1.8m.

The week before the company’s bankruptcy filing, Fresh & Easy closed its 97 locations across Arizona, California and Nevada. The company is hopeful that a buyer will be found and the company’s stores allowed to re-open in due course. “(Chapter 11) will enable us to continue the orderly wind down of our business and sale of our assets, and enable us to maximise the value of our assets for our creditors and stakeholders,” said Fresh & Easy on its website.

According to the company’s bankruptcy paperwork, Fresh & Easy will seek court approval of an accord signed with Hilco Merchant Resources LLC to dispose of the company’s inventory as well as an agreement to sell some or all of its assets.

With its Chapter 11 filing, Fresh & Easy became the second grocery chain backed by Yucaipa Companies LLC to resort to bankruptcy protection in the space of a few months. In July, Great Atlantic & Pacific Tea Company, under the ownership of private equity firms Yucaipa and Mount Kellett Capital Management, also filed for Chapter 11 bankruptcy protection for the second time. The firm, which filed for Chapter 11 in July, was forced to shut down and sell a number of its stores. Prior to the filling the company had 296 locations across the US, 159 of which have now been sold.

Fresh & Easy, which was created by UK supermarket chain Tesco in 2007, filed for bankruptcy protection in 2013 after the company lost millions of dollars. Indeed, between 2006 and 2007, Tesco invested in excess of $610m into the development of Fresh & Easy. However, by late 2012 the company was recording an average monthly loss of $22m.

Following the acquisition by Yucaipa, Fresh & Easy began a restructuring process focusing on convenience and low prices. Fresh & Easy began stocking more ready-to-eat meals, a wider selection of craft beer and more fresh food, but to no avail. In 2014 it began to downsize unprofitable stores and closed 69 locations. The failure of Fresh & Easy under the stewardship of Yucaipa is something of a surprise, as the buyout firm specialises in turning around troubled companies in the grocery sector, having held stakes in Food4Less, Ralphs Grocery Co, Dominick’s, Wild Oats and Fred Meyer.

In light of the filing, Fresh & Easy has appointed Amir Agam as its new chief restructuring officer to work with the company following its Chapter 11 filing. Mr Agam is a Los Angeles-based senior managing director at FTI Consulting.

In July 2014, Fresh & Easy won court approval for its first Chapter 11 plan which permitted the company to provide $94.5m to a group of creditors.

For some time, the US supermarket space has been a volatile area. In addition to Fresh & Easy and A&P, Pathmark and Food Emporium have also filed for bankruptcy protection as the sector has been dominated by bigger players such as Whole Foods Market Inc and Trader Joe’s Co. However, newer entrants to the market may yet have a significant impact. German discount retailer Aldi, for example, recently announced plans to expand into Fresh & Easy’s former stronghold of Southern California. Though the company operates around 1400 stores across 32 states, Aldi’s aggressive expansion plans will see a further 650 stores operational by the end of 2018.

Richard Summerfield