On August 23, KB US Holdings, parent company of Kings Food Markets, the Parsippany, NJ-based regional upscale chain, filed for Chapter 11 protection in the U.S. Bankruptcy Court for the Southern District of New York. The bankruptcy petition is a voluntary one and the court has accepted a “stalking horse” bid from investment firm TLI Bedrock to acquire 25 Kings and 10 Balducci’s stores for $75 million.
As part of the process, higher and better bids will be solicited, following the approval of bidding procedures under Section 363 of the U.S. Bankruptcy Code.
Additionally, KB has obtained a commitment for approximately $20 million in debtor-in-possession (DIP) financing from its existing secured lender, Whitehorse Capital Management LLC.
Upon bankruptcy court approval, the new financing, combined with cash generated from the company’s ongoing operations, will be used to support the business throughout the sale process. KB has sufficient liquidity to meet its go-forward business obligations and will operate its business as usual and pay its business partners for goods and services provided on or after August 23, 2020, the Chapter 11 filing date.
KB US Holdings, whose parent firm is GSSG Capital and is based in Qatar, acquired Kings in 2016 from private equity firm Angelo Gordon & Co. and MTN Capital.
“We are pleased to be moving forward with a sale so we can position Kings and Balducci’s for even greater long-term success. During this COVID crisis, our associates and communities have demonstrated not only the viability but absolute necessity of our markets in their communities. Our sales and service have never been stronger; we are confident we will emerge from this process without missing a beat, well-positioned for future stability and success,” said Judy Spires, CEO of KB US Holdings, Inc.
“We believe there is a unique place for essential stores with long-standing roots in their communities. We are seeking to invest in the opportunity for these stores to serve their local markets well,” said a statement released from TLI Bedrock.
Kings currently employs approximately 3,000 associates. Sales for the 52-week period ended on July 25, 2020 were about $590 million.
TLI Bedrock is a Manhattan-based investment firm that, according to its website, “is a multi-strategy fund that invests across sector and industry. It seeks high returns by backing innovative projects, responsible companies who think broadly about customer, employee and community needs, and sustainable approaches to commerce. TLI stands for trust, loyalty, integrity and serves as a guiding principle for the fund.” The company’s primary owner is Lawrence Benenson, who is part of Benenson Capital Partners, a long-established real estate investment firm based in New York.
Andrew Siegel serves as managing partner of the firm. Siegel, who joined TLI Bedrock in 2018, was a founding partner of Advance Venture Partners, the investment fund of global media company Advance Publications, Inc. He joined Advance in 2010, and as EVP-strategy and corporate development, was responsible for growth initiatives at the holding company and its operating units including Conde Nast.
Kings/Balducci’s challenges date back several years. And while more upscale retailers have entered Kings’ marketing area (primarily Central and Northern New Jersey) over the past 15 years (including Wegmans, Whole Foods, The Fresh Market and more upscale ShopRites, the market leader), many of Kings challenges have been internal.
“Kings possesses wonderful locations and is very good at marketing its image,” said a senior VP for a New Jersey-based retailer that competes against Kings. “But for many years they have not been competitive on price. When Kings was the only high-end, perishables-oriented retailer in their marketing area, they dominated that niche. But new retailers who offer many of the same products and services and are larger in size have penetrated the market in recent years, and when you couple that with lack of adequate financing with several ownership groups, you can see how Kings has struggled.”
Spires agreed that lack of capital has hindered Kings’ ability to grow, but the veteran retail executive believes that the filing of the voluntary Chapter 11 petition will allow the prospective new owners to provide Kings/Balducci’s the financial flexibility to move forward in a more competitive manner.
Kings’ financial difficulties can be seen in its most recent filing for the 52-week period ended July 25, 2020. While sales at its 35 stores were approximately $590 million, the retailer posted an $8.6 million loss even during the COVID pandemic when virtually all food retailers experienced very healthy sales and earnings. However, pre-COVID sales were soft, and the huge financial obligations Kings faced prevented the upscale merchant from adequately investing in its operations. Kings debt level is currently more than $110 million.
The Chapter 11 filing is not surprising since Kings has been working with investment advisor PJ Solomon to explore its sales options for about 18 months since a prospectus was issued. PJ Solomon will continue to work with Kings during the bankruptcy process. In the bankruptcy filing, PJ Solomon said it had contacted 114 potential purchasers, 67 of which signed non-disclosure agreements enabling them to receive further information. From that group, four parties continued to show interest before TLI Bedrock’s offer as a stalking-horse was accepted in July.
Also included in the bankruptcy data is the desire of KB/Kings to end the Chapter 11 process quickly, seeking an auction by October 8 and having a confirmation plan in place by December 18.
The urgency of an expedited plan was also noted by the retailer in the filing: “The debtors believe that if they cannot achieve a free and clear sale within the required time period prescribed by the milestones, all of the value created and preserved through the prepetition sale process will be lost, and the debtors could be left with no choice but to liquidate their business in a fire sale and piecemeal fashion.”