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Tops hopes bankruptcy filing will help it compete

The owners of Tops Markets, with a hefty debt burden and soft sales causing its losses to nearly double last year, filed for bankruptcy protection on Wednesday in hopes that it can slash its interest payments and emerge in more competitive financial shape.

Tops said it has no plans for sweeping store closings. Management will stay the same. It plans to honor its union contracts. And company executives stressed that it will be business as usual at the company’s 169 stores as it moves through the bankruptcy process.

The Chapter 11 bankruptcy filing, made in U.S. Bankruptcy Court in New York City, gives Tops a chance to escape the interest payments, topping $80 million a year, that were caused by more than $720 million in debt it has accumulated since 2007.

Tops executives said they believe the supermarket chain is a solid business that has been battered by interest payments that were too much to bear at a time when competition was intensifying. Falling prices on important items, like meat and dairy products, also were cutting into the company’s revenues and squeezing profit margins.

“Our business is strong,” said Frank Curci, Tops’ chairman and chief executive officer. “Our balance sheet is bad.”

Tops’ next step will be to develop a plan that is acceptable to its creditors that would allow it to reduce its debt, while freeing up cash that it can use to resume a program to upgrade its stores that was virtually halted last year because money was so tight.

Vendors react

News that Tops had sought bankruptcy protection rippled through the business community on Wednesday as the grocer sought to reassure suppliers of everything from fresh eggs to beer that it would continue to pay its bills.

“We do a substantial amount of business with them, no doubt about it,” said Paul Vukelic, president of Try-It Distributing Co., which distributes beer and non-alcoholic beverages to Tops. “Anytime somebody declares Chapter 11, there’s always a concern there, and we’re certainly concerned.”

Like other vendors, Vukelic said he was reassured that Tops has a “pretty good amount of cash flow available to keep stores open” and that it was committed to paying its bills going forward.

While shoppers may not see immediate or drastic changes, Tops said it would review its weakest-performing stores and that a small number could be on the block for closure. Other factors, such as out-of-stocks or decreased selection, may end up beyond the company’s control if suppliers and vendors decide to tighten up their shipments or stop sending shipments altogether.

Lou Billitier, Jr., owner of Chef’s restaurant on Seneca Street, said he made the decision to stop filling the grocer’s orders of pasta sauce Tuesday.

“They owe us quite a bit of money, so we’re worried about that,” said Billitier, who sells four flavors of his restaurant’s sauce at Tops and other grocery stores.

Tops said it expects to receive the court’s permission to continue to pay vendors and suppliers in full for goods and services delivered after Wednesday’s filing. But when a grocer files Chapter 11, the companies that supply it with everything from cantaloupe to cat food must decide how much credit they are willing to extend.

“People were starting to make these decisions even when there were just rumors of a bankruptcy,” said Raymond Fink, a partner with Lippes, Mathias, Wexler, Friedman and co- chair of its bankruptcy practice group. “The decisions come down to a lot of different factors. There’s no black and white rule book.”

Investors negotiations

Tops is negotiating with the investors who hold more than two-thirds of the company’s secured debt on a plan that would exchange that debt for stock in a reorganized company. The benefit of that type of swap would be that it could reduce Tops’ interest expense by as much as $60 million a year, depending on the terms of the still-unsettled deal, Curci said.

In the interim, Tops has arranged for $265 million in financing from its debt holders and Bank of America that it can use as it moves through the bankruptcy process. Tops said in the filing that it hopes to emerge from bankruptcy within six months. That financing is an important source of cash for Tops, which is expecting a nearly $19 million cash deficit over the next 30 days, according to the bankruptcy filing.

The bankruptcy filing also showed that Tops’ business has weakened since the chain’s management, led by Curci, bought the company in December 2013 through a leveraged buyout from Morgan Stanley Private Equity, which itself had acquired the business in 2007 through a leveraged buyout.

While Tops’ sales had stagnated at roughly $2.5 billion over each of the past four years, the company’s losses grew, totaling $187 million over the past three years, including an $80 million loss in 2016. By the end of last year, Tops was down to a little more than $18 million in cash, according to documents filed with the Bankruptcy Court.

“We’ve taken some steps to ensure our future viability,” Curci said.

“I think what we’re doing is going to set us up to do good things in the future,” he said. “We had to shed the debt that we had to continue to move forward.”

‘Highly competitive’ industry

Documents filed on Wednesday revealed details of a company struggling in a “highly competitive” industry in which consumers demand a “gourmet” shopping experience with natural, organic and gluten-free foods at the same time food prices have fallen.

“The challenging environment in which the company operates has been compounded by falling produce and retail food prices, and competitors’ increased willingness to engage in price-based competition,” wrote Michael Buenzow, the chief restructuring officer.

That, he said, put Tops at a “competitive disadvantage to companies that have the financial flexibility to devote greater resources to sourcing, promoting, and selling the most in-demand products.”

How Tops' debt grew and grew and grew

The documents also detailed the company’s largest unsecured creditors. They include debtholders like U.S. Bancorp and benefit managers for unionized workers. Most of the claims are for vendors, such as $54.7 million for C&S Wholesale, $7.8 million owed to Topco and $2.95 million owed to snack-maker Frito-Lay Inc.

Several smaller companies and local firms are also on the list. Locally, Upstate Niagara Cooperative, which sells dairy products under the Upstate Farms, Wendt, Breakstone’s and Bison Dip brands, is listed for $1.5 million. Kreher’s Farm Fresh Eggs of Clarence has a claim for $875,565. Kreher Director of Sales and Marketing Jamey Payne declined to comment.

Other smaller vendors who rely heavily on Tops for business but were not among its largest creditors were closely watching the situation Wednesday.

Steven Desmond, president of Heintz & Weber, said the maker of Weber’s mustard relies on the grocer’s deep market share for nearly a third of its sales.

After speaking with Tops representative on Wednesday, Desmond said he feels confident going forward with the grocer and delivering product on credit – just maybe not so much of it.

“We are taking the stand that we will continue as ‘business as usual’ with Tops,” Desmond said, “just being a bit more cautious from order to order.”

News Staff Reporter Stephen T. Watson contributed to this report.

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