Judge Gives OK To A&P To Tap About $400 Million Of Bankruptcy Loan

A judge on Monday said grocer A&P can tap nearly $400 million of its $800 million bankruptcy financing from J.P. Morgan Chase & Co. (JPM) that will keep it operating while in Chapter 11 protection.

Judge Robert D. Drain of U.S. Bankruptcy Court in White Plains, N.Y. was also set to rule on whether A&P, which is also known as Great Atlantic & Pacific Tea Co. (GAP), could continue day-to-day activities like paying its employees and vendors, one day after the company filed for Chapter 11 with about $2.5 billion in assets but total debts of more than $3.2 billion.

At the first-day-bankruptcy hearing, A&P lawyer Paul M. Basta of Kirkland & Ellis LLP called the $800 million loan "remarkable," saying he and his colleagues couldn't think of such a large debtor-in-possession, or DIP, loan that was fully underwritten.

Part of the money is earmarked for A&P's existing creditors, a condition J.P. Morgan demanded given its large commitment. If Drain gives final approval of the DIP loan at a later hearing, A&P will gain access to the remaining $450 million revolving credit facility.

A lawyer for the U.S. Trustee said he was concerned about Drain approving such a large amount of money without knowing how much A&P needed, although the trustee wasn't objecting.

Drain responded, "This is a grocery store chain. They need cash."

A&P's Chapter 11 filing wasn't wholly unexpected. The company posted a $153.7 million loss in its most recent quarter, which ended Sept. 11. In the past year, the company has gone through four chief executives.

Despite lining up its bankruptcy financing, A&P has little else in place. Many recent bankruptcy filings have been prepackaged or prearranged plans in which companies come to court on day one with support of most or substantially all of their creditors. A&P said one advantage of its debtor-in-possession loan is its 18-month maturity, meaning the company has more time to work on a plan.

Great Atlantic & Pacific Tea operates not only A&P stores but also Waldbaum's, Food Emporium, Food Basics and Pathmark.

Supermarket mogul Ron Burkle last year invested $115 million in A&P last year for nearly 30% of the company's stock and two board seats in addition to the one he already held, but earnings continued to lag as the company struggled to compete with not only other grocers but also the giant Wal-Mart Stores Inc. (WMT).

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-By Joseph Checkler, Dow Jones Newswires; 212-416-2152; joseph.checkler@dowjones.com

Great Atlantic Pac (NYSE:GAP)
Historical Stock Chart
From Jun 2024 to Jul 2024