Drug Fair files bankruptcy, looks to sell 32 stores

By Caroline Salls

Pittsburgh, March 18 - Drug Fair Group, Inc. and its parent company, CDI Group, Inc., filed for Chapter 11 bankruptcy Wednesday in the U.S. Bankruptcy Court for the District of Delaware, and Drug Fair entered into an agreement with a subsidiary of Walgreen Co. to sell substantially all of its assets associated with 32 of its stores to Walgreens, according to a company news release.

The sale is subject to bankruptcy marketing requirements and court approval.

Before its Chapter 11 filing, Drug Fair said it sold various assets at 13 locations to third parties, including Walgreens.

"After exploring alternatives following a thorough consultation with its legal and financial advisors, Drug Fair's board of directors determined that an orderly sale of the company's assets through a Chapter 11 process, together with those assets sold prior to the Chapter 11 filing, would be the most prudent and effective way to maximize value for Drug Fair's stakeholders," Drug Fair chief restructuring officer Tim Boates said in the release.

"We have worked very hard to structure a transaction that is in the best interest of all parties, including our employees and the communities they serve."

The company said day-to-day operations will be uninterrupted at the locations that are to be sold.

In connection with the bankruptcy filing, Drug Fair has arranged a four-month $40 million secured debtor-in-possession financing facility to fund its operations during the Chapter 11 proceedings and allow the company to pay employee wages and benefits and post-bankruptcy vendor obligations.

Bank of America NA is the administrative agent.

The DIP facility will mature on the earliest of 120 days from the execution of the credit agreement, upon the completion of the sale to Walgreens and the effective date of a plan of reorganization.

Interest will be Prime rate plus 250 basis points for margin loans, Prime rate plus 113 bps for documentary letters of credit and Prime rate plus 225 bps for standby letters of credit.

The company will pay a $150,000 arrangement fee and an $800,000 commitment fee.

According to court documents, Drug Fair had $90.68 million in assets and $120.34 million in debt as of July 31.

The company's largest unsecured creditors include Cardinal Health of Westfield, N.J., with a $17.99 million trade claim and Rockaway Pharmacy, Inc. of Rockaway, N.J., with a $1.47 million lessors/contract claim.

Drug Fair is a Somerset, N.J.-based operator of pharmacies and general merchandise stores. Its Chapter 11 case number is 09-10897.

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