A&P cuts $40 million unsecured creditor pool amid exit loan reduction

By Caroline Salls

Pittsburgh, Feb. 16 - The Great Atlantic & Pacific Tea Co., Inc. (A&P) requested court approval to make changes to its plan of reorganization without re-soliciting creditor votes, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of New York.

A&P is asking the court to schedule the confirmation hearing for Feb. 27 and to set a Feb. 24 deadline for objections to the changes.

Under the proposed changes, the company would eliminate a $40 million unsecured creditor cash pool as a result of an exit financing shortfall.

A&P said its reorganization is based on a $490 million new-money investment commitment, which depends on its ability to obtain a $750 million exit facility on terms acceptable to the investors.

The company said the exit financing is necessary to provide enough working capital for it to manage its businesses upon emergence and to begin a much-needed capital improvement program.

As a result of the importance of the exit financing, A&P's securities purchase agreements require it to obtain an exit facility with availability, when combined with the total investment amount, that is sufficient to satisfy all debtor-in-possession facility claims and includes a commitment of at least $750 million and excess availability of at least $100 million.

However, A&P said it did not obtain commitments that satisfied the securities purchase agreement requirements. The size of the exit facility's term loan has been reduced to $270 million from $350 million, and the ABL facility has also been reduced in size.

The company said re-sizing the exit facility has forced it to reconsider its cash requirements, given that its available financing as of the effective date "will be significantly lower than previously anticipated."

Under the revised plan, A&P said, the $40 million that would have gone to the unsecured creditor cash pool will instead give the company the liquidity needed to complete its reorganization with the smaller exit facility.

Contingent cash distribution

Under the plan changes, unsecured creditors may be eligible to receive a contingent cash distribution in the event of a cash sale for all or substantially all of the reorganized company's assets or common stock completed within five years of the plan effective date.

Unsecured creditors would receive this contingent cash if the net cash proceeds of the sale distributable to then-existing reorganized company equityholders equal or exceed specified thresholds.

Specifically, the creditors would receive $10 million in contingent cash distributions if the net cash sale proceeds for existing equityholders equal or exceed $800 million, but are less than $1.1 billion; $20 million if the equity proceeds equal or exceed $1.1 billion, but are less than $1.3 billion; $30 million if the equity proceeds equal or exceed $1.3 billion, but are less than $1.5 billion; and $40 million if the equity proceeds equal or exceed $1.5 billion.

Creditors previously scheduled to receive distributions from the cash pool include convertible noteholders, senior noteholders, holders of quarterly interest bond claims, trade claimants, holders of guaranteed landlord claims, holders of pension withdrawal claims and holders of general unsecured claims.

The securities purchase agreements were also amended to match commitment conditions to reduce the exit facility size, to extend the confirmation order deadline to March 30 from Feb. 14 and to extend the effective date deadline to April 2 from March 1.

The fee cap for securities purchase agreement transaction expenses will be increased to $7.5 million from $5 million.

A&P is a Montvale, N.J.-based operator of supermarkets. The company filed for bankruptcy on Dec. 12, 2010. Its Chapter 11 case number is 10-25459.

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