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5 things to watch in the Tops bankruptcy

There's more to the bankruptcy filing by the owners of Tops Markets than shedding debt and reducing the supermarket chain's stifling interest payments.

There are other issues that will have to be addressed as Tops reorganizes – from pension issues that could cost more than $180 million to decisions about what to do with stores that aren't pulling their own weight financially.

Here are five things to watch for as the bankruptcy case moves forward.

*What happens to the pensions? When Tops bought warehouses in Lancaster and West Seneca from C&S Wholesale in late 2013, it inherited obligations for employees of the former Erie Logistics under the Teamsters Pension Fund.

From the start, there has been a dispute between Tops and the pension fund over how much the supermarket company might owe on its pension obligations.

Potentially, Tops could be looking at a liability of more than $180 million – an amount that would complicate any reorganization plan.

The dispute has been in arbitration for four years. The arbitration hearings have been completed and a briefing is expected to be completed by the end of March. The dispute is scheduled to move into mediation during the first week in May.

Tops' pension troubles don't stop there. The pension funds for its employees who are represented by the United Food and Commercial Workers union, as well as the Teamsters union are badly underfunded. The food and commercial workers pension fund is underfunded by $393 million.

Michael Buenzow, the financial restructuring specialist who has been appointed Tops' chief restructuring officer, said in court documents that Tops plans to use the bankruptcy proceedings to address its pension obligations and the Teamsters arbitration.

"The company will take reasonable steps to do so on a consensual basis," Buenzow said.

*Which stores are on thin ice? Frank Curci, Tops' chairman and chief executive officer, struck a reassuring tone after the bankruptcy filing on Wednesday, saying it would be "business as usual" at the chain's 169 supermarkets and that he didn't expect many stores to close as Tops reorganizes.

Documents filed with the U.S. Bankruptcy Court, however, indicate that as many as one of every eight Tops stores is struggling financially. The chain said 21 of its stores are consuming more cash than they generate, making them a drain on a chain that was badly strapped for cash before it entered bankruptcy.

Curci said Tops would be reviewing the performance of its stores as part of the reorganization. The negative cash flow at those 21 stores likely would put them at the top of any list of potential closings, barring improvements in their financial performance in the coming months.

*What happens to Orchard Fresh? The Orchard Fresh store in Orchard Park was Tops' response to the growing popularity of organic foods and the success of grocers like Whole Foods.

The idea was to come up with a store concept that would appeal to the same type of shoppers who were flocking to Whole Foods in other markets and buying natural and organic foods at Tops and its local competitors, including Wegmans.

Shoppers still are flocking to organic and natural foods, but the Orchard Fresh concept has struggled to find its niche. Tops executives have tinkered with its product offerings to find the right mix for local consumers. Plans to roll out the Orchard Fresh concept at other locations have never come to pass, even as Whole Foods opened its first area store in Amherst.

At the same time, Tops has made a big push to add many more organic and natural products at its own supermarkets.

Burt Flickinger III, the Buffalo native who is managing director of retail consultant Strategic Resource Group in New York City, said Orchard Fresh is a cash drain on Tops. He said Tops would be better off shutting down Orchard Fresh and devoting those resources to its rural stores, which often are the only supermarket in town and face much less intense competition.

*Will Tops' landlords get squeezed? Tops leases all but eight of its stores from a handful of landlords. It's not cheap. The company's rent payments run about $6 million a month, and that doesn't include property taxes and expenses like maintenance and insurance.

Tops is looking for savings on the real estate side. It is working with a real estate company, Hilco Real Estate, to look for ways it could strike better lease terms under bankruptcy, where it's easier to alter the terms of existing contracts.

The company already has asked the Bankruptcy Court to reject leases on stores that Tops previously closed in the Syracuse suburb of Jordan, in Wappingers Falls, south of Poughkeepsie, and in Gardner, Mass.

*Isn't that a familiar face? As Tops' chief restructuring officer, Buenzow is in charge of guiding the supermarket through the bankruptcy process – a journey that he said in court papers could take as little as six months.

He's also not entirely unfamiliar with Western New York. When Bush Industries filed for bankruptcy protection in 2004, Buenzow stepped in as interim president of the Jamestown manufacturer of ready-to-assemble furniture.

At Bush, the bankruptcy process took less than seven months, with the company emerging from Chapter 11 in October 2004 with a reorganization that converted $90 million of Bush's bank debt to equity, paid all of its vendors and unsecured creditors in full and distributed $1.6 million to the company's shareholders.

Tops is charting a similar course, seeking a much bigger debt-to-equity swap, while also promising to pay its vendors in full.

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