UPDATE 3-Grocery chain A&P files for bankruptcy

* Filed for bankruptcy with more than $1 bln in debt

* Once America’s leading grocery

(Adds details from court documents, background)

By Michael Erman and Caroline Humer

NEW YORK, Dec 12 (BestGrowthStock) – Grocery store chain Great
Atlantic & Pacific Tea Co filed for bankruptcy on
Sunday, drained of cash by tough competition and a sluggish
economic recovery.

Once the largest U.S. grocer, the owner of about 400
stores under brands such as A&P, Waldbaum’s and Super Fresh
filed for Chapter 11 bankruptcy in New York with more than $1
billion in assets and more than $1 billion in debt, according
to court documents.

As of Sept. 11, A&P had total debt of more than $3.2
billion, but it is unclear how much the company is currently
carrying.

JP Morgan Chase & Co will provide $800 million in
debtor-in-possession financing, the company said. The U.S.
Bankruptcy Court for the Southern District of New York will
hold a hearing on Monday to approve a portion of the facility.

The Montvale, New Jersey-based company said its stores
will remain fully stocked and open with no interruption of
business. It has struggled since it acquired Pathmark Stores
in 2007 with a $1.4 billion financing package.

A&P had nearly $9 billion in sales in its fiscal year to
February 2010, but it has been bleeding cash at a rate of
nearly $5 million a week.

The company reported having less than $100 million in cash
and short-term investments on hand in September and it faces
debt maturities in June.

Its biggest stockholders are activist investor Ron Burkle
and the German retail group Tengelmann. A&P said in a
statement that its major shareholders support the action.

Burkle’s Yucaipa investment firm has built up a large
position in the company’s debt recently, which could put it in
a stronger position to control the bankruptcy, according to
people familiar with the firm’s activities. [ID:nSGE6A10LO]

WAREHOUSE WOES

A&P has been challenged by the economic downturn and
competitors including warehouse clubs and discount retailers,
Frederic Brace, the company’s chief restructuring officer,
said in court documents.

He said legacy costs for three areas had hurt the company:
leases in locations where the company no longer operates, an
unfavorable supply agreement with C&S Wholesale Grocers –
which supplies 70 percent of its inventory – and a
transportation contract with Grocery Haulers Inc., and high
labor costs including its pension funding.

Another factor in deciding to file for bankruptcy, he
said, was that A&P had a $13.4 million interest payment due on
certain unsecured notes on Dec. 15 and that failing to make
the payment would have causes issues with its senior debt.

The company was founded in 1859 and grew to be the largest
U.S. grocery chain by the 1930s, operating close to 16,000
stores at the time. American novelist John Updike wrote a
well-known short story in 1961 called “A&P,” after the
supermarket chain.

The recession and slow economic recovery have claimed
several supermarket chains. They have been squeezed on prices
by discounters that have expanded into the food business such
as Wal-Mart Stores Inc , while well-heeled customers
have been lured away by high-end offerings of competitors such
as Whole Foods Market Inc .

Bruno’s, Bi-Lo, Penn Traffic Co and Bashas’ have all filed
for bankruptcy over the past two years.

Trading in A&P’s stock was halted on Friday in the early
afternoon because of news pending. Before the halt, A&P’s
stock lost 67 percent in Friday’s session to trade at 93
cents. It had traded as low as 87 cents during Friday’s
session. The stock peaked this year at $12.97 on Jan. 7,
according to Reuters data.

A&P is being advised on the restructuring by Lazard
and law firm Kirkland & Ellis.

The case is in Re: The Great Atlantic & Pacific Tea
Company Inc,, U.S. Bankruptcy Court, Southern District of New
York, No. 10-24549.
(Additional reporting by Tom Hals; Editing by Jan Paschal,
Diane Craft and Muralikumar Anantharaman)

UPDATE 3-Grocery chain A&P files for bankruptcy