Chattanooga: $260 million loan deadline prompted Bi-Lo’s Chapter 11

Bi-Lo LLC was facing a Thursday deadline for a $260 million loan that the company said it was unable to renew, prompting its Chapter 11 bankruptcy filing, court documents show.

The grocer and its subsidiaries Monday filed for bankruptcy reorganization. Bi-Lo owed $260 million to investors led by The Bank of New York Mellon and $100 million to an investment group led by GE Business Financial Services Inc., according to documents filed with the U.S. Bankruptcy Court, District of South Carolina.

Bi-Lo said in its filing that it was unable to reach an agreement with the investors led by The Bank of New York Mellon to renew the $260 million loan. Bi-Lo believed that it would be unable to repay the loan, and the investors would move to seize the grocer’s assets, documents state.

However, the investors led by The Bank of New York Mellon filed court documents Tuesday disputing the group had been unwilling to extend the loan to Bi-Lo’s parent company, a group led by Lone Star Fund V.

The group led by GE had agreed to either provide up to $100 million for Bi-Lo’s operations outside of Chapter 11 bankruptcy for up to two years or for one year while the grocer was in bankruptcy, documents state.

Also Tuesday, Standard & Poor’s Ratings Services reported it had lowered Bi-Lo’s corporate credit rating to “D” from “CCC.”

A number of grocers and grocery wholesalers have complained of tight credit markets, said Lorrie Griffith, editor of The Shelby Report, a grocery industry publication.

“I would say that is definitely affecting them in terms of making it harder to get the capital needed to open new stores or remodel existing stores (or refinance stores, it appears),” Ms. Griffith said in an e-mail.

Grocers also are dealing with lower spending by customers who are opting for such cost-cutting measures as buying store brands or less meat, she said.

Bi-Lo’s revenues and earnings had been falling for several years because of growing competition and an unstable economy, the documents state. The company’s earnings before taxes, depreciation and amortization dropped from $114 million in 2006 to an anticipated $52 million this year, Bi-Lo said.

Bi-Lo has enough cash on hand and sufficient cash flow to operate during the bankruptcy case, Michael Byars, Bi-Lo’s president and CEO, said on Monday.

Bi-Lo does not plan to close any of its approximately 215 stores nor lay off any employees, Mr. Byars said Monday.

In its court filings, Bi-Lo said that while most stores were doing well, several stores “have been identified as burdensome.” The documents do not identify individual stores. However, Bi-Lo said it is still paying rent on 35 stores that were previously closed as well as a warehouse in Chattanooga that has been closed.

Bi-Lo in January closed its store on Highway 153 in Hixson.

Court documents state that despite falling revenues, Bi-Lo has substantial revenues and adequate liquidity to operate. Bi-Lo officials believe the company can concentrate on its prime stores by getting rid of obligations from underperforming and closed stores, as well as renegotiating its debt obligations.

Last November, Bi-Lo began taking action to become more competitive, documents state, including hiring Mr. Byars, identifying underperforming stores and negotiating contracts and leases for underperforming stores. Bi-Lo also over the past two years had cut administrative costs to a total of $22 million annually.