Tuesday, December 27, 2011

Speculation on Great Atlantic & Pacific Tea Company; Return to Solvency




On December 8, 2010, I was taken by surprise when the Great Atlantic & Pacific Tea Company (A&P) filed for Chapter 11 bankruptcy. Personally, my IRA is made up of only 2% of this company’s bond investments but the Darnell L Williams Foundation has a large percentage of these bonds in its portfolio. The company is supposed to come out of chapter 11 as a private company in early 2012.

However, I do not know if the new company will pay cash for the bonds that make up the companies’ debt in full or in part. Since the company is going private, it is very unlikely that they will give bondholders stock in the company. The current stockholders will more than likely lose their investment in full in the company. I would not speculate in the stock of this company that still trades on the Pink Sheets under the symbol GAPTQ.

Peter Cleveland published a story in Smallcap Network, “Great Atlantic & Pacific Tea Company (GAPTQ); Looking to Emerge from Bankruptcy”. Here he said that GAPTQ ”has entered into an agreement under which it will receive $490 million of debt and equity financing from private investors, which include The Yucaipa Companies LLC, Mount Kellett Capital Management LP and investment funds managed by Goldman Sachs Asset Management L.P. The agreement requires an approval from the U.S. Bankruptcy Court for the Southern District of New York.”
“A&P believes that the agreement with the private investors will allow it to complete the restructuring of its balance sheet and emerge from Chapter 11 as a private company in early 2012.”

“Based in Montvale, New Jersey, GAPTQ filed for bankruptcy after struggling with too much debt and competition from other retailers. A&P, which once operated more than 15,000 stores, now operates 336 stores in seven U.S. states.”

“CEO Martin noted that A&P has been working extremely hard over the last year to execute a successful turnaround by improving the value and in-store experience it provides to its customers and by successfully driving significant efficiencies across its operations and supply chain to bring down its cost structure. Martin added that going forward; the investors are committed to supporting additional operational and service improvements.”

“A&P expects to emerge from Chapter 11 early next year in a much stronger competitive and financial position. “

“On completion of the transaction and after emerging from bankruptcy, GAPTQ’s existing Board of Directors will be dissolved. The company will appoint a new Board under the terms of the plan of reorganization.”

Less Risk than Stockholders

Another financial disaster that my foundation and my IRA owned, River Rock Entertainment Authority 9.75% of 11/01/2011 bond issue, which paid it interest on time until May 2011. They refinanced and have paid off its old bonds. Just to tell you how these types of disasters can work out for you, I paid $890 per $1,000 bond in 2010. From May 2011 they did not pay me. When they paid me off, I received a new River Rock Entertainment Authority Sr. Note 9% of 11/01/2018 bond plus $66.29 in interest and late fees per bond.

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