Risk

Fairway Grocery Stores Slide Into Bankruptcy

The New York grocery store chain will continue operating under a prepackaged Chapter 11 filing.
Matthew HellerMay 3, 2016
Fairway Grocery Stores Slide Into Bankruptcy

The parent of iconic New York food retailer Fairway has filed for bankruptcy protection as it struggles to compete with larger chains and service the debt it has accumulated since its 2007 sale to a private-equity firm.

Monday’s Chapter 11 filing would enable Fairway Group to implement an agreement with senior secured lenders to eliminate about $140 million in debt through an exchange of loans for stock and $84 million of debt of the reorganized company.

Fairway, which started out in 1933 as a fruit and vegetable stand on the Upper West Side of Manhattan, said its 15 Fairway Market groceries and four wine and spirits stores will continue operating. At the time of the filing, it had $279 million in senior debt.

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“We believe that implementing this prepackaged [bankruptcy] plan is the best opportunity for Fairway to restructure its balance sheet on an expedited basis, strengthen its operations, retain jobs, and create long-term value, while continuing to provide customers with the best food experience in the greater New York area,” CEO Jack Murphy said in a news release.

PE firm Sterling Investment Partners, which acquired Fairway in a $150 million leveraged buyout, and other shareholders will lose their stakes. Over the past year, the stock (Fairway Group Holdings) has lost 95% of its value, closing Monday at 21 cents.

According to the New York Times, Fairway’s downfall can be traced to the buyout, which “led to an aggressive store-opening plan that vacuumed up cash and sent the company’s stock price plummeting.” The expansion took Fairway into New Jersey, Connecticut, and elsewhere. The company became more aggressive after its initial public offering in 2013.

Fairway also has faced rising competition from the likes of Whole Foods, Trader Joe’s, and cheaper mass retailers.

Trader Joe’s “seemed to adopt Fairway’s sharp-elbowed pursuit of a fresh, cheap dinner,” Forbes commented. “Perhaps, the company was partly a financial train-wreck, but also a victim of its own success.”

Murphy said the original Fairway had grown into “the greatest food store in the country,” adding, “Nobody slices a fish or boils a bagel like us. Nobody.”