Fairway Market files for Chapter 11, plans to sell all stores

A day after refuting reports of an impending liquidation, Fairway Market said it has filed for Chapter 11 bankruptcy protection and aims to sell all of its 14 stores.

Fairway announced early Thursday that, as part of the Jan. 23 filing with the U.S. Bankruptcy Court for the Southern District of New York, the company has entered into a stalking horse asset-purchase deal to sell up to five New York City stores and its distribution center to ShopRite owner-operator Village Super Market for about $70 million.

New York-based Fairway said it will continue talks to divest the rest of its stores under a court-supervised sale.

Fairway now has eight stores in New York City, including five in Manhattan, two in Brooklyn and one in Queens. The upscale grocer also operates two stores in Long Island, N.Y.; one in New York’s Westchester County; two in New Jersey; and one in Connecticut. In addition, the retailer’s website lists four Wine & Spirits stores among its locations, including two outlets in New Jersey and one apiece in New York and Connecticut.

"We would like to extend gratitude to our employees, vendors, distributors and customers for their support, dedication and loyalty over the years. It has always been Fairway's priority to ensure our patrons are provided with the most optimal grocery experience, with the freshest foods and best-quality products, and our employees feel appreciated," Fairway Market CEO Abel Porter said in a statement. "After careful consideration of all alternatives, we have concluded that a court-supervised sale process is the best way to meet our objectives of preserving as many jobs as possible, maximizing value for our stakeholders, and positioning Fairway for long-term success under new ownership."

Related:Fairway Market says it has ‘no intention’ to liquidate

Supporting the planned store sale, an ad hoc group of senior lenders have agreed to provide up to $25 million in debtor-in-possession financing, according to Fairway. The company said its stores across the metropolitan New York area will operate as usual during the sale process, with all promotional and customer loyalty programs continuing.

Under the stalking horse agreement with Fairway, Village Super Market represents the initial bidder for the stores, in effect setting the low-end price for the court-supervised sale. The Springfield, N.J.-based company said it retain the Fairway store name and concept. Fairway offers a wide selection of fresh, natural and organic products and prepared foods, as well as specialty and gourmet offerings plus a full assortment of conventional groceries.

Related:Report: Fairway Market readies another Chapter 11 filing

A member of the Wakefern Food Corp. retail cooperative, Village Super Market operates 30 stores under the ShopRite banner in New Jersey, Maryland, New York City and eastern Pennsylvania and three specialty markets under the Gourmet Garage banner in New York City.

"Perry and Nick Sumas opened the first Village Market in 1937, and our family continues to believe deeply in the importance of neighborhood grocery stores,” Village Super Market CEO Robert Sumas stated. “We appreciate that Fairway's loyal customers are concerned about the future, and if we are successful in our bid, we are committed to keeping Fairway, including its name, unique product selection and value, a part of this community.”

Yesterday, Fairway denied a New York Post report that the grocer was planning to file for Chapter 7 and move ahead with a liquidation. After Fairway’s statement on Wednesday, another Post article said the grocer declined to elaborate on its plans going forward and “didn’t deny that the company was planning to close stores.” The Post also reported that Village Super Market was a potential suitor for Fairway stores in New York City.

Earlier this month, the Post reported that Fairway was planning to file for Chapter 11 after unsuccessful efforts to find a buyer for its stores. The Post also said Fairway, owned by lead shareholders Brigade Capital Management and Goldman Sachs Group, is “quietly closing” stores.

For the bankruptcy and sale process, Fairway said it has retained law firm Weil, Gotshal & Manges as well as PJ Solomon as M&A investment banking adviser and Mackinac Partners as financial adviser.

“Our client, Fairway Markets, has agreed to sell its Manhattan stores and commissary/distribution center to Village Super Markets, a publicly traded member of the Wakefern/ShopRite cooperative, who will be a stalking horse in Fairway’s Chapter 11 filing, which occurred earlier this morning,” Scott Moses, managing director and head of food retail and restaurants investment banking at New York-based PJ Solomon, said in an email on Thursday.

“Fairway’s iconic Manhattan stores include some of the most productive supermarkets in the United States," Moses said, adding that the stores and distribution center employ more than 1,400 people. "This transaction helps to secure those jobs and the legacy of this unique New York City foodie experience, which has been a pillar of our community for generations.”

The Chapter 11 filing marks Fairway’s second in less than four years. In May 2016, parent company Fairway Group Holdings made a "prepackaged" Chapter 11 filing in which lenders agreed to exchange existing debt for new equity and debt in a reorganized company. The retailer emerged from Chapter 11 in June 2016. That came after Fairway couldn’t overcome heavy debt and high costs that persisted following an initial public offering in 2013, in which the company envisioned an aggressive expansion to potentially hundreds of stores.