How Bankruptcy Filing Will Change Fairway Group Holdings Corp (NASDAQ: FWM)


With shrinking revenues and mounting losses, Fairway Group Holdings Corp (NASDAQ: FWM) had nowhere else to look except to file for Chapter 11 bankruptcy. Management has promised a quick bankruptcy reorganization process that will see the company emerge with a lighter balance sheet and more money to fund operations. But Fairway won’t remain the same post the bankruptcy process.

The bankruptcy filing is expected to help Fairway drop debt and unlock money to be spent on technology upgrades among other things to at least keep up with the competition in its industry.

Debt position

Fairway Group Holdings Corp (NASDAQ: FWM)’s balance sheet reflected $279 million in senior debt at the time of bankruptcy filing. Before the company sought Chapter 11 bankruptcy protection, management had warned of difficulties to meet certain loan obligations unless the outstanding debts were renegotiated or the company secured fresh funding.

What’s bankruptcy filing about?

Fairway is promising to have its senior lenders convert their debt into equity and provide new debt to help the company through its restructuring phase. But the conversion of the senior debt into equity will significantly dilute the stakes of major shareholders in the company. For example, Sterling Investment Partners is set to lose its 80% control of the voting power in Fairway.

The lenders will gain greater control of the company after they swap their debt for shares.

Who won’t be affected?

Fairway’s Chapter 11 filing will not affect landlords or the company’s unionized workers who number about 3,400.

Fresh loan

To help it through the reorganization process, Fairway Group Holdings Corp (NASDAQ: FWM) is seeking $45 million in term loan and another $39 million in unsecured subordinate loan. In total, the company is expected to emerge from the bankruptcy with a debt position of $139 million.

Source of Fairway’s woes

Intense competition is largely blamed for Fairway Group Holdings Corp (NASDAQ: FWM)’s problems. The retailer is facing growing competition both from legacy retail stores and online retailers who are delivering items to shoppers’ doorsteps.


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