Tops Markets' hope for a quick restructuring in bankruptcy are fading.
The supermarket chain is asking a U.S. Bankruptcy Court for another four months to wrap up work on its plan to reshape its business, saying the restructuring process is too complex to complete within the six-month time frame Tops executives initially hoped would be sufficient.
Instead, Tops, which originally had hoped to be ready to move out of bankruptcy by August, now is asking the bankruptcy court to give the company until late December to complete work on its restructuring.
Tops, in court papers requesting the extension, said it has accomplished a lot since filing for bankruptcy protection in February. Even with the proposed extension, which must be approved by the bankruptcy court, Tops said it still is on track for an "expeditious exit" from bankruptcy.
But it still has a lot of work to do.
Here's a look at what's happened so far and what still needs to be done.
What's left to do
- Work out a deal to reduce debt. Tops had more than $700 million in debt – almost half of it used to pay dividends to its former owners, Morgan Stanley Private Equity. To move out of bankruptcy, Tops will need to strike a deal with its secured creditors, who control most of the company's debt. Tops is hoping to work out a deal to exchange that debt for an ownership stake in the restructured business – a move that will strengthen the company's financial performance by greatly reducing the $80 million a year it was paying in interest on that debt before the bankruptcy filing. Tops said it has outlined its business plan for a restructured company to its main creditors, including the secured creditors who will have the greatest say in the process because their debts are backed by the chain's assets.
- Close underperforming stores and cut lease costs. Tops last month was granted court approval to move forward with its plan to close "a few" stores, although it has not said how many it wants to close or identified which ones. The company has said 21 of its 169 company-run stores – nearly one of every eight Tops supermarkets – are underperforming, putting those undisclosed locations in the greatest jeopardy. Its real estate consultant already has struck deals to reduce lease payments at nearly 20 of Tops' stores and it is working on others. Tops is asking the bankruptcy court to allow it to review the leases at all of its stores as part of its search for further savings.
- Solve its remaining pension problems. Nearly 90 percent of Tops' workers are represented by the United Food and Commercial Workers union, and the pension fund that those workers participate in is badly underfunded, to the tune of more than $380 million. Tops has told UFCW officials it wants to reduce its payments to that pension fund by two-thirds as part of its bankruptcy restructuring. The two sides met last week to discuss the pension issue, although Frank DeRiso, the union president, said entering the talks that they were not close to an agreement. Tops said in the court papers it hopes to reach a settlement soon.
What's been accomplished
- Reached a deal to resolve its Teamster pension dispute. Tops last month reached a key settlement with the Teamsters union and a Teamsters pension fund to resolve a major pension dispute that could have cost the company more than $180 million over a 20-year span. The deal, which still needs court approval, removes a major financial hurdle that Tops was facing and allows it to settle a bitter dispute that had dragged on for more than four years. Tops agreed to use the money earmarked for a controversial $3.6 million executive bonus plan to fund most of its contribution to a new $15 million retirement fund that is being established for the warehouse workers. That new retirement fund will partially reimburse them for pension benefits they have not accrued since the pension dispute began in December 2013. The deal also extends the contract with Teamsters Local 264 by two years, giving workers at its warehouse 2 percent annual raises.
- Dropped its executive bonus plan. Tops' proposal to pay bonuses of up to $1.3 million to its Chairman and CEO, Frank Curci, and smaller sums to other high-ranking executives, was a lightning rod for criticism, especially from the chain's workers and their unions. Tops dropped the executive bonus plan as part of the Teamsters pension settlement, but it still is pushing for a $3.5 million retention bonus plan that would reward 115 top managers and executives for not leaving their jobs through the end of this year. The Teamsters union agreed to drop its objection to the retention bonus plan as part of the pension settlement, but the UFCW still opposes it.