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Editorial: Tops' challenge

Tops is one of Western New York's biggest employers and a valuable corporate citizen. The company filed for Chapter 11 bankruptcy protection on Wednesday. The centerpiece of its plan is a strategy to lighten an onerous debt load.

A bankruptcy filing is a bit like corporate chemotherapy – it's strong medicine – but Western New Yorkers should be confident that Tops has a bright future. The company went into bankruptcy court well prepared with a plan that will put the supermarket chain on a secure footing. Tough negotiations lie ahead, but there is good reason for optimism.

Tops Chairman and CEO Frank Curci was blunt in acknowledging the problem of the company's debt. "Our business is strong," he said Wednesday. "Our balance sheet is bad."

The supermarket's problems probably haven't been evident to most people. The stores have been as busy as ever, the parking lots are filled and the shelves are stocked with food. It looks like it did before the onslaught of competition, not only from traditional grocery stores like Wegmans, but also from newer, high-end entries like Whole Foods and Trader Joe’s and from behemoths like Walmart and Target. Even Amazon is getting into the business of selling groceries.

This is an industry with narrow margins to begin with. Profits typically range between 1 percent and 3 percent, meaning the stores make their money on volume. As expanding numbers of outlets compete for customers in a stable or shrinking market, volume declines. Falling prices for meat and dairy products added to the stress. The store is unionized and paying higher salaries than many competitors.

But debt was the killer. As business reporter David Robinson noted in Wednesday’s editions of The Buffalo News, the chain carries a burdensome debt of more than $720 million, so much that it pays more than $80 million a year just in interest.

The arithmetic didn’t work. It was, perhaps, only a matter of time before the numbers put Tops in a financial vise. Chapter 11 of the bankruptcy law offers potential solutions. It gives companies such as Tops the breathing room to work out payment plans while staying in business. The process is overseen by the bankruptcy court.

The path Tops outlined on Wednesday is a "debt-for-equity swap," Curci said shortly after the bankruptcy claim was filed. If it plays out as hoped, he said, "most of the debt will go away."

Instead of paying interest of more than $80 million – that was the figure from 2016 – that liability would shrink to around $20 million, which Curci described as manageable. The savings would cut the chain’s losses – $44 million in 2016 and $80 million last year – and give the company enough liquidity to operate and invest in its outlets. "This will put us in a very strong position," Curci said.

The work now is negotiating with creditors who, naturally enough, want to protect their own financial interests. Most, one hopes, will be guided by the premise that it's better to find a way to help the store out of the financial wilderness than for everyone to lose. Call it enlightened self-interest.

But, we suspect it goes beyond that. Tops – and Curci – have many friends in this community. They are valued here and Western New Yorkers want to see them succeed.

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