SYRACUSE, N.Y. — Penn Traffic here has entered into a forbearance agreement with its lenders after what it termed a “technical default” on its loans.
The retailer, which has been required to collateralize about $35.8 million in letter of credit obligations, also engaged a crisis management firm, Conway Del Genio Gries & Co., and installed a representative of that firm, Ronald F. Stengel, as its chief restructuring officer.
Under the forbearance agreement, lenders led by GE Capital have agreed not to proceed with remedies related to the default until Nov. 25, and will make credit available to Penn Traffic according to a budget expected to be delivered this week. Penn Traffic in a government filing said the loan default stemmed from “alleged overstatements of the value of certain machinery and equipment in the company's borrowing base certificates.” This, Penn Traffic said, was a result of its failure to provide title documents for such equipment in accordance with the agreement.
“We continue to work closely with our lenders and appreciate the flexibility that they have provided us with this latest agreement,” Gregory J. Young, president and chief executive officer of Penn Traffic, said in a statement.
C&S Wholesale Grocers, Penn Traffic's supplier, has been notified of the developments and is expected to continue providing its services without interruption, Penn Traffic added.
One source told SN that the default was not a cause for immediate concern, citing Penn Traffic's positive cash flow and a “clean” balance sheet since eliminating net debt with proceeds from the sale of its wholesale business to C&S a year ago. However, sales and net earnings have plummeted, and appointing a restructuring officer could hasten an event such as a sale or merger, the source said.
Conway Del Genio Gries (CDG) is a New York-based financial advisory firm that previously worked with Penn Traffic from October 2006 through December of last year.
