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A N 8 8 D 8 B 1 AR SINCE www. NYLJ.com Volume 258—NO. 42 WEDNESDAY, August 30, 2017

Bankruptcy Update Expert Analysis Food for Thought: , Grocer And Distributor Chapter 11 Filings

his issue of the Bankruptcy supplier terms, the debtors embarked Update focuses on filings in on an out of court sale process in

the grocery and food distri- By December 2016. The debtors received bution sector as companies Edward E. several bids prepetition but had not Neiger struggle in the face of pric- yet selected a stalking horse bidder Ting fluctuations and increasing online when the involuntary filings forced competition. The column delves into them to file their Chapter 11 petitions. the bankruptcy proceedings of Cen- At the outset of their bankruptcy tral Grocers, Rupari Food Services and sales for 2016. The debtors also held proceedings the debtors relied on Marsh . a significant stake in the Strack and their lenders’ cash collateral to fund Central Grocers Inc. (Bankr. N.D. Van Til Super Market chain. As of the operations; securing two short-term Ill. Case No. 17-13886) petition date, the debtors reported interim orders authorizing such use. On May 4, 2017, Midwestern grocery Subsequently, on May 13, 2017, the supplier Central Grocers and affiliates In ‘Rupari Holding’, facing a debtors sought authority to enter filed petitions for relief under Chapter into a $205 million debtor in posses- liquidity crisis exacerbated by 11 of the Bankruptcy Code in the U.S. sion financing facility with PNC Bank Bankruptcy Court for the District of fluctuating pork prices, the debt- NA. The proposed DIP financing was . The filing followed the com- ors entered bankruptcy seeking initially opposed by the official com- mencement of involuntary liquidation to effectuate a going concern mittee of unsecured creditors who proceedings by certain of Central Gro- sale of substantially all of their argued, among other things, that the cers’ creditors in the Northern District assets. financing required the debtors to run of Illinois two days earlier. an unreasonably short sale process Formed a century ago, Central Gro- that they had approximately $230 mil- and included exorbitant fees, oppres- cers grew to become the largest gro- lion in secured debt and $43 million sive provisions for payment of the DIP cery cooperative and retail supplier in trade debt. lenders’ prepetition debt, and liens in the greater area with 550 The debtors’ financial condition on otherwise unencumbered prop- employees and over $1.8 billion in deteriorated as consumer preferences erty including litigation claims. The for gourmet and specialized products creditors’ committee and the debtors Edward E. Neiger is a co-managing partner at ASK evolved and increased online compe- ultimately reached a consensual reso- LLP, a national law firm focusing on bankruptcy law. lution of the objection whereby the Marianna Udem, a partner at the firm, assisted in tition led to shrinking market share. the preparation of this column. Facing a liquidity crisis and tightening debtors agreed to modify certain sale WEDNESDAY, August 30, 2017 milestones and provide for potential under Chapter 11 of the Bankruptcy cannot be assigned without the licen- creditor recoveries through litigation. Code in the U.S. District Court for the sor’s consent. The debtors also faced An order approving the DIP financing District of Delaware. objections to the proposed stalking was entered on June 8, 2017. The debtors, headquartered in Illi- horse bid protections by the official Contemporaneously, the debtors nois, provide meat products to retail committee of unsecured creditors and sought approval of bidding proce- and food service markets in the United the U.S. Trustee who argued that a dures in connection with the sale of States, Canada, Colombia, Hong Kong, proposed 4 percent break-up fee was substantially all of their assets. The Mexico, Panama, Singapore and South excessive in light of the exigencies proposed bid procedures included Korea. Since 2007, the debtors sold a surrounding the Tony Roma’s license. bid protections for Food Stores line of barbecue products associated The debtors were able to reach a com- who was selected as a stalking horse with Tony Roma’s steakhouse chain promise with the creditors’ commit- bidder with respect assets including via a licensing agreement with Roma tee and the U.S. Trustee by agreeing 19 Strack and Van Til store locations Dining and Romacorp. The licensing to a reduced break-up fee of 3 percent. as well as the inventory contained at agreement governing the relationship The court approved the revised bid the stores. The debtors would also was allegedly terminated by the licen- procedures overruling Romacorp’s seek to sell their warehouse facility sors for failure to pay an estimated objections as premature and more and other assets. An order approving $3.5 million in royalty payments and appropriate for the sale approval the bidding procedures was entered interest. hearing. on June 2, 2017. Facing a liquidity crisis exacerbated Following the approval of the bid In the interim, several of the debtors’ by fluctuating pork prices, the debtors procedures, the debtors concluded creditors sought to transfer the debt- entered bankruptcy seeking to effectu- that a decision on the validity of the ors’ cases to the U.S. Bankruptcy Court ate a going concern sale of substan- licensing agreement was not neces- for the Northern District of Illinois on tially all of their assets. To that end, sary to move forward with the stalk- the basis that the debtors had no con- the debtors sought approval of bidding ing horse package since assumption nections to Delaware beyond incorpo- procedures in connection with the sale of the agreement was removed as a rating there. As a result, on June 13, of their assets, with competitor Carl closing condition to the proposed 2017, the cases were transferred to Buddig and Co. selected to act as the sale. Nevertheless, upon learning that the Northern District of Illinois. stalking horse bidder with a stalking Romacorp entered into a new licens- Following the transfer, the debtors horse bid valued at $26 million. ing agreement with Ruprecht Co. to conducted several auctions for their Contemporaneously with the bank- sell Tony Roma’s branded meat, the assets, whereby Grocery ruptcy filing, the debtors also filed debtors commenced another action Group emerged as the winning bidder an adversary proceeding seeking a against Romacorp alleging a violation for the assets included in the stalk- declaratory judgment that the Tony of the automatic stay. ing horse package and SUPERVALU Roma’s license was not properly ter- On May 30, 2017, the debtors Holdings submitted the winning bid minated pre-petition and could be announced that they received no addi- for the distribution center and certain assumed and assigned to the pur- tional qualified bids for their assets related assets. Orders approving the chaser of their assets. and intended to move forward with sales were entered on July 18 and July Romacorp objected to the pro- the stalking horse bid. In the interim, 26, 2017, respectively. posed bid procedures arguing that Romacorp filed a motion seeking a Rupari Holding Corp. (Bankr. D. the licensing agreement was no longer determination that the licensing Del. Case No. 17-10793) valid and could not be included in agreement was terminated for cause On April 10, 2017, meat products dis- the stalking horse package. It further prior to the bankruptcy filing and tributor Rupari Food Services and cer- argued that even if the licensing agree- could not be assumed by the debtors tain affiliates filed petitions for relief ment did not terminate prepetition, it and assigned to the purchaser. WEDNESDAY, August 30, 2017

On June 6, 2017, the court approved a decision to close and liquidate 19 resolve the objection by extending the sale to the stalking horse bidder. more stores. In addition, Marsh sold the deadline to select a potential The sale provided for a $2 million the pharmacy and prescription assets stalking horse bidder by a week to escrow reserve for Tony Roma’s mer- of its 38 in-store pharmacies to an June 5, 2017. chandise to enable closing to proceed affiliate of CVS Pharmacy for $38 Following a robust auction, on June prior to the resolution of the licensing million. The proceeds were used to 14, 2017, the debtors sought and dispute. The court further directed pay down a portion of the debtors’ obtained court approval to move the parties to participate in media- secured debt. As a result, as of the forward with two sale transactions tion on the licensing dispute and petition date, the debtors’ primary involving 26 core stores. TopValco, an set a briefing and hearing schedule debt obligations included $11 million affiliate of grocery chain , would should the matter not be resolved in lease related expenses; approxi- purchase 11 Marsh locations and the consensually. mately $5.2 million obligation to Wells equipment held at those stores for a On Aug. 18, 2017, the court issued Fargo Bank NA under a senior lien $16 million purchase price. Inventory its opinion finding that the licensing facility, approximately $25.7 million located at these stores was exclud- agreement could not be assumed ed from the purchased assets and and assigned to the purchaser. The expected to generate approximately In ‘ Hold- court found that the agreement pro- $5.8 million for the estate through a vided limited circumstances where ing’, following a robust auction, separate ongoing liquidation process. consent to an assignment could not on June 14, 2017, the debtors Generative Growth II would purchase be unreasonably withheld and those sought and obtained court ap- 15 store leases for $1.5 million and circumstances were not present in proval to move forward with inventory contained at the stores light of the prior closing of the sale two sale transactions involving for an additional $6.3 million. Subse- of substantially all of the debtors’ 26 core stores. quently, on July 20, 2017, the court assets. The court also granted Roma- authorized the sale of an additional corp retroactive relief from the auto- obligation to Marsh Group Finance location to Triangle Pointe Properties matic stay to May 22, the date when under a promissory note, $6.2 million for $150,000. assumption and assignment of the in additional junior secured debt and licensing agreement was eliminated approximately $30 million in trade as a condition to closing. debt. Marsh Supermarkets Holding LLC The debtors commenced their (Bankr. D. Del. Case No. 17-11066) Chapter 11 cases with the goal of On May 11, 2017, supermarket effectuating an expedited market- chain Marsh Supermarkets Holding ing and sale process to sell their 40 and affiliates filed petitions for relief core operating stores. They sought under Chapter 11 of the Bankruptcy approval of bid procedures that would Code in the U.S. Bankruptcy Court culminate in a June 12 auction and a for the District of Delaware. hearing to approve the sale by June Founded in 1931, Marsh Super- 15, 2017. The debtors advocated for markets operates supermarkets in the compressed timeline as it would Indiana and . Prior to the bank- allow the sale to close prior to a June ruptcy filing, the company conducted 25 due date for July rent at the stores. an internal assessment of profitability The official committee of unsecured Reprinted with permission from the August 30, 2017 edition of the NEW by location which led to a shutdown creditors objected to the expedited YORK LAW JOURNAL © 2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, of 11 Marsh stores in late 2016 and process but the parties were able to contact 877-257-3382 or [email protected]. # 070-08-17-50