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Five investors will have a big say in Tops' future

Five investors will have a big say in the fate of Tops Markets as it tries to ease its stifling debt load and restructure its business through bankruptcy.

The five investors include one widely known name, the owner of mutual fund company Fidelity Investments, and four lesser known hedge funds and investment firms.

Together, the five companies own more than $413 million of Tops' secured debt, according to documents filed in U.S. Bankruptcy Court on Thursday. They have banded together to form a committee to represent their interests during the reorganization. They also have agreed to provide $140 million in new financing for Tops as it works its way through the bankruptcy process.

That gives those investors an influential position in the bankruptcy process since their investments are secured by Tops' assets, much like a bank that issues a mortgage to a home buyer has a secured position because it can foreclose on the house if the homeowner stops paying.

"They are extremely important," said Raymond Fink, a partner with Lippes, Mathias, Wexler, Friedman and co-chair of its bankruptcy practice group.

The five investors own more than 70 percent of the $560 million in secured notes issued by Tops. Because the debt is secured by virtually all of Tops' assets, the noteholders could lay claim to almost everything that Tops owns, from the items on its store shelves to the freezers and other equipment in its stores and even the store shelves.

That gives them a lot of clout because Tops' plan to restructure and emerge from bankruptcy in better financial shape is centered around a plan that would cut its debt by more than half. To do that, Tops wants the secured debtholders to exchange most of their debt for an ownership stake in the reorganized business.

Doing that would make a reorganized Tops much more financially nimble by cutting its interest payments by as much as $60 million a year, which would go a long way – but not all the way – toward eliminating the supermarket chain's losses, which totaled $80 million last year.

"That will put us in a very strong position," said Frank Curci, Tops' chairman and chief executive officer. "In the current environment, too much of our money was going to debt service."

Court documents said the secured creditors group hired a law firm last month to represent it during negotiations with Tops. Curci said the company had been talking with the noteholders before the bankruptcy filing about a debt-for-equity swap that would exchange $400 million to $500 million of Tops' debt for an equity stake in the reorganized company.

The secured debtholders, however, aren't the only group that will have a say in what happens to Tops, which still is being run by the same management team led by Curci, Fink said.

The Bankruptcy Court will appoint a committee to represent Tops' unsecured creditors. The company's landlords also will have significant input since they, in many cases, own the buildings where Tops has its stores. Tops' unions also will have a say, including the United Food and Commercial Workers International Union and six others that, together, represent 85 percent of Tops' 14,000 employees and Teamsters Local 264.

"Each one has a certain amount of leverage in the ultimate disposition of Tops," Fink said.

Tops plans to use the bankruptcy proceedings to seek better terms on its supply agreements with its biggest unsecured creditor, C&S Wholesale Grocers, which is owed nearly $55 million, said Michael Buenzow, a restructuring expert who is Tops' chief restructuring officer, in court papers.

Tops also has hired an adviser, Hilco Real Estate, to help it get better terms on its real estate leases, Buenzow said.

Burt Flickinger III, the Buffalo native who is managing director of retail consultant Strategic Resource Group in New York City, said debt-for-equity swaps that are part of bankruptcy reorganizations are not a cure-all for troubled supermarkets. Other grocery chains, including A&P, Grand Union and Penn Traffic, did debt-for-equity exchanges, but ultimately failed because they couldn't restructure the grocery business in a way that made its stores more appealing to customers and brought in more shoppers.

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Regardless, a big part of the overall restructuring will center around the debt-to-equity swap now being discussed. How much debt is exchanged and how big of an ownership stake the secured debtholders receive will be key issues in any reorganization plan.

Here is a look at each of the five debtholders that are part of the noteholders committee.

  • Silver Point Capital: A Greenwich, Conn., hedge fund that has more than $12 billion in assets under management. Silver Point, co-founded by Edward A. Mule and Robert J. O'Shea, specializes in investments in distressed securities. It holds $157.7 million in Tops' secured notes.
  • HG Vora Capital Management: A New York City hedge fund led by Parag Vora that often invests in highly leveraged businesses. The firm has more than $4 billion in assets under management. It holds $92.2 million of Tops' secured notes.
  • Fidelity Management & Research Co.: The Boston-based investment firm runs the Fidelity family of mutual funds. It holds $63.8 million in Tops' secured notes.
  • Column Park Asset Management: A New York City hedge fund, led by Dr. Brian Noll, that invests in distressed and high-yield securities. It holds $50 million in Tops' secured notes.
  • Signature Global Asset Management: A Toronto-based investment firm led by Eric Bushell that has more than $40 billion under management. It holds $47.8 million in Tops' secured notes and another $1.8 million in a different series of debt.

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