WILMINGTON, Del. — Funds affiliated with Los Angles-based Yucaipa Cos. remain in the lead position to acquire Fresh & Easy Neighborhood Market after the chain filed bankruptcy here this month.
Before filing Chapter 11, the Tesco-owned chain had secured the sale of 150 stores to Yucaipa, the private-equity firm owned by veteran supermarket investor Ron Burkle, and had also sought to exit as many real estate leases as possible for the remaining locations.
Real estate sources told SN Fresh & Easy had hired executives from the San Francisco office of Alvarez & Marsal — a New York-based global financial specialist — to work out deals with several Fresh & Easy landlords. According to A&M’s website, its Real Estate Advisory Services division "designs and implements value-enhancing real estate solutions."
A&M representatives could not be reached for comment.
The sources said Fresh & Easy was offering to pay up to six months of rent on leases that are scheduled to run between eight and 18 years.
"That’s an extraordinarily short amount of time to pay for," one industry consultant said. "It’s really a huge travesty for a company like Tesco, which told these people when it started opening stores how much money it had."
According to the bankruptcy filing, Fresh & Easy owes Tesco $738 million stemming from intercompany loads provided to fund the chain’s fast rollout. Tesco is the chain’s single largest creditor, and Fresh & Easy does not have any other credit agreements with banks. It owes about $18.4 million to vendors for goods and services.
Read more: Keyes Set to Run Fresh & Easy
Fresh & Easy also had annual lease obligations totaling about $72 million for its stores in California, Nevada and Arizona, the company said. Of the 167 stores currently in operation, 25 sites are owned by Fresh & Easy, 50 are ground leases and 92 are store leases.
In addition, Fresh & Easy owns 61 store locations that are not being operated, and is party to leases for 36 non-operating store locations.
In the filing, Fresh & Easy said that although it was successful on some fronts — it has about 2.6 million loyalty-club members, and a successful private-label program for example — it was "unsuccessful in obtaining a sufficiently broad customer base."
"As a result, Fresh & Easy incurred operating losses each year since 2006," the company said in the filing.
The company blamed the decline in the real estate market, in part, for its struggles.
"Many of Fresh & Easy’s leases are substantially above market, relative to its competitors," Fresh & Easy Chief Financial Officer James Dibbo said in an affidavit. "The effect of the real estate market was especially pronounced."
During its efforts to sell the company, Fresh & Easy said it received 16 "preliminary indications of interest" in acquiring parts of the company, and four indications of interest for the whole company, which also includes a warehouse and production facility in the Riverside, Calif., area, and an unused warehouse in Stockton, Calif.
In addition to the 150 stores, Yucaipa also agreed to buy the Riverside warehouse and production facility.
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