Tops Markets' road out of bankruptcy likely will involve a deal that would leave its major debt holders with an ownership stake in the supermarket chain.
"We're talking about a debt-for-equity swap," Tops Chairman and CEO Frank Curci said after the debt-strapped supermarket chain filed for a bankruptcy reorganization on Wednesday.
"Most of the debt will go away," Curci said.
While the details of the restructuring will have to be worked out through the bankruptcy process, Curci outlined the broad parameters of a potential way for Tops to emerge with a new ownership structure that would be led by bondholders who now control about 65 percent of the company's secured debt.
With less debt, Tops would be able to reduce its annual interest payments, which totaled more than $80 million in 2016, to somewhere in the vicinity of $20 million, Curci said.
Curci stressed that Tops' business is healthy, but it was being swamped by debt payments that were too much for it to absorb at a time when competition in its upstate New York markets was intensifying and falling meat and dairy prices were cutting into its revenues.
"Our business is strong," he said. "Our balance sheet is bad."
By swapping debt to give some of its debt holders an ownership stake in the business, Tops would be able to reduce its annual interest payments, which totaled more than $80 million in 2016, to somewhere in the vicinity of $20 million, Curci said.
That savings would be enough to stem Tops' losses, which reached $44 million in 2016, and provide the company with enough cash to profitably run its stores and continue to invest in them.
"This will put us in a very strong position," Curci said. "The losses are really due to the interest we were paying."
Curci said he expects the bankruptcy process to take about six months to complete.
Curci also outlined other aspects of the company's restructuring efforts:
- The vast majority of Tops' 169 stores across upstate New York, Pennsylvania and Vermont will remain open during the restructuring process. Curci said the company will review its weakest performing stores, but he does not expect more than a couple would be considered for closure.
- The chain's existing management, including Curci, will remain with the company during the reorganization. If the company emerges from bankruptcy, Curci said the reorganized company will have new ownership and a new board of directors. "Nothing changes in management," he said. Tops' debt holders, which agreed to put up $125 million in new funding for the supermarket chain to use during the bankruptcy process, "have a lot of faith in us as a management team."
- Tops will not try to restructure its labor contracts with its unionized workers during the bankruptcy reorganization.
Story topics: Tops bankruptcy