================================================================= ATLANTIC & PACIFIC BANKRUPTCY NEWS Issue Number 2 ----------------------------------------------------------------- Copyright 2010 (ISSN XXXX-XXXX) December 14, 2010 ----------------------------------------------------------------- Bankruptcy Creditors' Service, Inc. 215-945-7000 FAX 215-945-7001 ----------------------------------------------------------------- ATLANTIC & PACIFIC BANKRUPTCY NEWS is published by Bankruptcy Creditors' Service, Inc., 572 Fernwood Lane, Fairless Hills, Pennsylvania 19030, on an ad hoc basis (generally every 10 to 20 days) as significant activity occurs in the Debtors' cases. New issues are prepared by Jehlyn Grace Q. Molijon, Randy T. Antoni, Julie Anne G. Lopez and Peter A. Chapman, Editors. Subscription rate is US$45 per issue. Any re-mailing of ATLANTIC & PACIFIC BANKRUPTCY NEWS is prohibited. ================================================================= IN THIS ISSUE ------------- [00009] A&P OBTAINS INTERIM APPROVAL OF $800MM DIP FINANCING [00010] DEBTORS' MOTION FOR AUTHORITY TO USE CASH COLLATERAL [00011] DEBTORS' MOTION TO USE EXISTING CASH MANAGEMENT SYSTEM [00012] DEBTORS' MOTION TO USE EXISTING BANK ACCOUNTS [00013] DEBTORS' MOTION TO USE EXISTING BUSINESS FORMS [00014] DEBTORS' MOTION TO WAIVE SECTION 345 DEPOSIT REQUIREMENTS [00015] DEBTORS' MOTION TO CONTINUE INTERCOMPANY TRANSACTIONS [00016] DEBTORS' MOTION TO HONOR PREPETITION EMPLOYEE OBLIGATIONS [00017] DEBTORS' MOTION TO CONTINUE CUSTOMER PROGRAMS [00018] DEBTORS' MOTION TO PAY PREPETITION CRITICAL VENDOR CLAIMS [00019] DEBTORS' MOTION TO PAY WAREHOUSING CHARGES, LIEN CLAIMS [00020] DEBTORS' MOTION TO HONOR DEPOSIT, TRUST FUND OBLIGATIONS [00021] NYSE TO SUSPEND TRADING IN GREAT ATLANTIC & PACIFIC [00022] S&P CUTS A&P RATING TO 'D' AFTER CHAPTER 11 FILING [00023] STANDARD & POOR'S DISCLOSES CHANGES TO U.S. INDEX [00024] MOODY'S DOWNGRADES A&P PROBABILITY OF DEFAULT RATING TO D [00025] A&P SEEN USING BANKRUPTCY TO CLOSE OVER 100 STORES KEY DATE CALENDAR ----------------- 12/12/10 Voluntary Chapter 11 Petition Date 12/27/10 Deadline to File Schedules of Assets and Liabilities 12/27/10 Deadline to File Statement of Financial Affairs 12/27/10 Deadline to File Lists of Contracts and Leases 01/11/11 Deadline to Provide Utilities with Adequate Assurance 03/12/11 Deadline to Remove Actions Pursuant to F.R.B.P. 9027 04/11/11 Expiration of Debtors' Exclusive Plan Proposal Period 04/11/11 Deadline to Make Decisions About Lease Dispositions 06/10/11 Expiration of Debtors' Exclusive Solicitation Period 12/11/12 Deadline for Debtors' Commencement of Avoidance Actions Organizational Meeting to Form Creditors' Committees First Meeting of Creditors under 11 USC Sec. 341 Bar Date for filing Proofs of Claim ----------------------------------------------------------------- [00009] A&P OBTAINS INTERIM APPROVAL OF $800MM DIP FINANCING ----------------------------------------------------------------- The Great Atlantic & Pacific Tea Company, Inc. and its debtor- affiliates sought and obtained interim approval from the United States Bankruptcy Court for the Southern District of New York to enter into a debtor-in-possession credit agreement with JPMorgan Chase Bank, N.A. The Court's interim order authorizes the Debtors to borrow money and obtain letters of credit up to an aggregate principal or face amount of $550,000,000. The Debtors have obtained a commitment for a fully underwritten $800,000,000 credit facility from JPMorgan. The DIP Lenders are a syndicate of banks, financial institutions and other entitles, including JPMorgan Chase Bank, arranged by the Lead Arranger, J.P. Morgan Securities LLC. The Administrative Agent is JPMorgan Chase Bank. According to Paul M. Basta, Esq., at Kirkland & Ellis LLP, in New York, the DIP Financing commitment is unique for a retailer in Chapter 11 because it provides significant availability, competitive pricing, and an 18-month maturity date -- all without burdensome case controls. The $800,000,000 DIP financing facility consists of: (1) A $350,000,000 secured superpriority priming term facility to refinance the Debtors' prepetition senior secured credit facility and provides approximately $187,000,000 in incremental liquidity. This will be drawn in full upon entry of the Interim Order; and (2) A $450,000,000 secured superpriority priming revolving facility, including access to a $250,000,000-letter of credit sublimit. Mr. Basta notes that the DIP Agreement will (i) repay approximately $135,500,000 outstanding under certain prepetition first lien credit facilities upon entry of the Interim Order; and (ii) provide approximately $187,000,000 in incremental liquidity to fund the Debtors' operations through a secured superpriority priming senior term loan facility upon entry of the Interim Order and approximately $263,000,000 of incremental liquidity upon entry of the final order. The DIP Financing will be used (i) to finance the working capital needs or for general corporate purposes of the Debtors, (ii) to pay the fees, costs and expenses incurred by the Debtors in connection with the Chapter 11 cases, (iii) to refinance the Prepetition Credit Facilities. The DIP Loan will mature 18 months after the closing date. The DIP Loan will terminate on the earliest of: (i) the Maturity Date; (ii) 40 days after the entry of the Interim Order if the Final Order has not been entered; (iii) the substantial consummation of a confirmed plan of reorganization; and (iv) the acceleration of the Loans and the termination of the Commitment in accordance with the DIP Agreement. The proposed DIP Financing subjects the security interests and administrative expense claims of the Lenders to the "Carve-Out." Carve Out refers to (i) all fees required to be paid to the Clerk of the Bankruptcy Court and to the Office of the United States Trustee, (ii) all reasonable fees and expenses incurred by a trustee under Section 726(b) of the Bankruptcy Code not to exceed $100,000, and (iii) at any time after the first business day after the occurrence and during the continuance of a C/C Event of Default and delivery of notice thereof to the United States Trustee for the Southern District of New York, Debtors' counsel, and the Creditors' Committee, the payment of accrued and unpaid professional fees, costs and expenses incurred by persons or firms retained by the Debtors and the Creditors' Committee and allowed by the Court, in an aggregate amount not exceeding $15,000,000, which amount may be used subject to the terms of the Interim DIP Order. The Court will convene a hearing on January 10, 2011, to consider final approval of the request. A full-text copy of the DIP Credit Agreement is available for free at http://bankrupt.com/misc/AP_DIP_Agreement.pdf Full-text copies of the DIP Commitment Letter, DIP Term Sheet, and Intercreditor Agreement are available at no charge at: http://bankrupt.com/misc/AP_DIPCommitmentLetter121010.pdf http://bankrupt.com/misc/AP_DIPTermSheet121010.pdf http://bankrupt.com/misc/AP_DIPIntercredAgr080409.pdf ----------------------------------------------------------------- [00010] DEBTORS' MOTION FOR AUTHORITY TO USE CASH COLLATERAL ----------------------------------------------------------------- The Debtors have approximately $1 billion in funded indebtedness and related obligations, comprised of: (a) a prepetition senior secured term facility and revolving facility with the prepetition lenders; (b) prepetition secured notes; (c) four series of unsecured notes; and (d) $10 million in unsecured promissory notes. The Debtors also have 175,000 shares of convertible preferred stock issued and outstanding, with a $1,000 per share liquidation preference. On August 4, 2009, the collateral agent under the Debtors' Prepetition Credit Facilities, and the collateral agent under their Prepetition Secured Notes Security Agreement, entered into an Intercreditor Agreement, which governs the relative contractual rights of the Prepetition Lenders and Second Lien Lenders. Among other things, the Intercreditor Agreement provides that claims arising under the Prepetition Secured Notes or the Second Lien Indenture are subordinated to "first lien debt" of up to approximately $815 million, including as such debt may be refinanced. The Intercreditor Agreement also imposes certain limitations on the ability of the Second Lien Lenders: (a) to contest a refinancing of the Prepetition Credit Facilities and/or a proposed postpetition DIP financing provided by or consented-to by lenders under the Prepetition Credit Facilities; and (b) request adequate protection during a bankruptcy proceeding. The Second Lien Lenders have effectively consented to the Debtors' access to any postpetition financing, including the DIP Financing, and the Debtors' use of cash collateral subject to their junior liens, relates Paul M. Basta, Esq., at Kirkland & Ellis LLP, in New York. Against this backdrop, the Debtors sought and obtained an order from the Court authorizing them, on an interim basis, to use all Cash Collateral of the Prepetition Secured Lenders. The Court directed the Prepetition Secured Lenders to promptly turn over to the Debtors all Cash Collateral received or held by them. The Debtors' right to use Cash Collateral will terminate automatically on the Termination Date, as defined in the DIP Credit Agreement, upon the giving of five days' prior written notice to the Debtors. The Prepetition Secured Lenders are entitled, until the indefeasible repayment of the Prepetition Debt to adequate protection of their interest in the Prepetition Collateral, including the Cash Collateral, for and equal in amount to the aggregate diminution in the value of the Prepetition Secured Lenders' interest in the Prepetition Collateral, including, without limitation, any diminution resulting from the sale, lease or use by the Debtors of Cash Collateral and any other Prepetition Collateral, the priming of the Prepetition Agent's security interests and liens in the Prepetition Collateral by the Agent and the DIP Lenders pursuant to the DIP Documents and the Interim Order, and the imposition of the automatic stay pursuant to Section 362 of the Bankruptcy Code, in each case to the extent required by the Bankruptcy Code. As adequate protection for the Adequate Protection Obligations, the Prepetition Agent and the Prepetition Secured Lenders are granted, among other things: (a) Adequate Protection Liens; (b) Refinancing of the Prepetition Debt; and (c) A superpriority claim as provided for in Section 507(b) of the Bankruptcy Code. The Court will convene a hearing on January 10, 2011, to consider final approval of the request. ----------------------------------------------------------------- [00011] DEBTORS' MOTION TO USE EXISTING CASH MANAGEMENT SYSTEM ----------------------------------------------------------------- The Debtors use an integrated, centralized cash management system, in the ordinary course of business, to collect, transfer, disburse and invest funds generated by their operations. It is designed to manage the inflow of various forms of receipts from the Debtors' customer base and accommodates their reliance on third-party providers who process customer payments or other receipts. At the Debtors' behest, the Court issued an interim order authorizing them to continue using their existing cash management system. In an order dated December 13, 2010, Judge Robert Drain authorized the Debtors to maintain their cash management system and implement changes to it including closing bank accounts and opening new bank accounts. The Debtors, however, have to provide the U.S. Trustee with notice of the new bank accounts, and to obtain the prior consent of JP Morgan Chase Bank N.A. to their requests to close or open any accounts, according to the court order. JP Morgan is the administrative and collateral agent under the Debtors' debtor-in-possession credit agreement dated December 12, 2010. Judge Drain authorized all banks where the Debtors' accounts are maintained to continue to service and administer those accounts, and to honor any checks, drafts, wires and ACH payments issued and drawn on the accounts. He also authorized the banks to charge the Debtors for their service fees and reimburse them for any costs and charges incurred in accordance with their contractual arrangements with the Debtors. "Maintaining the cash management system in its current state is crucial to the Debtors' operations given the significant volume of cash transactions managed through the cash management system every day," says the Debtors' lawyer, Paul Basta, Esq., at Kirkland & Ellis LLP, in New York. The cash management system is comprised of approximately 57 bank accounts at various financial institutions. About $70 million to $80 million flows through the cash management system on a daily basis. A chart reflecting the flow of funds through the Debtors' bank accounts in the cash management system is available for free at http://bankrupt.com/misc/A&P_FlowChartcashMgt.pdf The deadline for filing objections to the final approval of the Debtors' request to maintain their cash management system is January 4, 2010. If an objection is timely filed and served, that objection will be set for hearing on January 10, 2010. ----------------------------------------------------------------- [00012] DEBTORS' MOTION TO USE EXISTING BANK ACCOUNTS ----------------------------------------------------------------- The Debtors sought and obtained an interim order authorizing them to continue using their existing bank accounts. The Debtors maintain about 57 bank accounts at various financial institutions primarily to accommodate different business divisions and to collect, organize and track various forms of customer receipts. These bank accounts, which comprise the Debtors' cash management system, are: (1) Main Concentration Account The focal point of the Debtors' cash management system is the main concentration account at JPMorgan Chase Bank, which serves as the ultimate collection point for all funds moving through the cash management system, except for funds in accounts that are not directly connected to the main concentration account. Over the last three months, the average balance in the account was about $870,000. (2) Deposit Accounts The Debtors maintain a series of deposit accounts to collect a wide range of receipts from their operations. Certain of these accounts also disburse funds used in operations with lottery organizations, Coinstar Inc., transit authorities, credit card companies, among others. (3) Disbursement Accounts The Debtors pay accounts payable, payroll, tax payments, and certain other disbursements primarily through 12 disbursement accounts. Disbursements are made in the form of checks, Automated Clearing House payments, wire transfers and zero-balance accounts. (4) Standalone Accounts The Debtors maintain several bank accounts that are not directly connected to the main concentration account. These accounts include three money market accounts with Double Rock, Goldman Sachs, and Wells Fargo; Environmental Protection Agency trust Account with Valley National Bank to fund remediation work; three accounts with JPMC and PNC Bank to fund charitable disbursements for certain pension and employee benefits; and an account administered by the Debtors' marketing department to manage marketing-related Projects. A list of the Debtors' bank accounts is available for free at http://bankrupt.com/misc/A&P_BankAccounts.pdf The Debtors are in the process of closing several deposit and disbursement accounts at the Bank of New York. The deposit accounts are scheduled to close by the end of this month while the disbursement accounts are scheduled to close by January 2011. The deadline for filing objections to the final approval of the Debtors' request to continue using their bank accounts is January 4, 2010. If an objection is timely filed and served, that objection will be set for hearing on January 10, 2010. ----------------------------------------------------------------- [00013] DEBTORS' MOTION TO USE EXISTING BUSINESS FORMS ----------------------------------------------------------------- The Debtors sought and obtained an interim order from the Court authorizing them to continue using their existing business forms without reference to their status as debtors-in-possession. In case the Debtors generate new checks during the pendency of their Chapter 11 cases, those checks should include a legend referring to the Debtors as "debtors-in-possession," according to the interim court order. Paul Basta, Esq., at Kirkland & Ellis LLP, in New York, says changing the Debtors' business forms in compliance with the U.S. Trustee Guidelines would be "expensive, unnecessary and burdensome" to their estates. The U.S. Trustee Guidelines prohibit disbursements other than by numbered checks, which checks must bear the applicable debtor's case name and case number, a "debtor-in-possession" designation, and an indication of the account type. The deadline for filing objections to the final approval of the Debtors' request to use their existing business forms is January 4, 2010. If an objection is timely filed and served, that objection will be set for hearing on January 10, 2010. ----------------------------------------------------------------- [00014] DEBTORS' MOTION TO WAIVE SECTION 345 DEPOSIT REQUIREMENTS ----------------------------------------------------------------- Section 345(b) provides that any deposit or other investment made by a debtor, except those insured or guaranteed by the United States or by a department, agency or instrumentality of the United States or backed by the full faith and credit of the United States, must be secured by either a bond in favor of the United States that is secured by the undertaking of a corporate surety approved by the U.S. Trustee for the relevant district or the deposit of securities of the kind specified in Section 9303 of the Money and Finance Code. The Debtors adhere to certain investment practices designed to protect and maximize yield and liquidity. Specifically, they have adopted a cash investment policy, pursuant to which they only invest in money market accounts that are eligible under Rule 2a-7 of the Investment Company Act of 1940, and maintain a one dollar-a-share net asset value. Paul Basta, Esq., at Kirkland & Ellis LLP, in New York, says that the Debtors' investment accounts provide sufficient protection for their cash, and it would be in the best interest of the estates and creditors if the Debtors to continue to follow their practices for investment of cash. Accordingly, the Debtors sought and obtained interim court approval to continue their investment practices, provided they will only invest their excess cash in either funds that invest in U.S. government-backed securities, or in banks that are designated as authorized depositories by the U.S. Trustee Guidelines. The deadline for filing objections to the final approval of the Debtors' request to continue their investment practices is January 4, 2010. If an objection is timely filed and served, that objection will be set for hearing on January 10, 2010. ----------------------------------------------------------------- [00015] DEBTORS' MOTION TO CONTINUE INTERCOMPANY TRANSACTIONS ----------------------------------------------------------------- In the ordinary course of business, the Debtors maintain business relationships with affiliates, which result in intercompany receivables and payables arising from these transactions: (1) Expense Allocations. In the ordinary course of business, the Debtors and certain non-debtor affiliates incur centrally billed expenses, including insurance premiums, workers' compensation obligations, payroll and benefit costs, and information technology costs. The Great Atlantic & Pacific Tea Company Inc. often pays these expenses and then allocates them to the appropriate affiliates. (2) Revenue Allocations. In the ordinary course of business, the operating company Debtors transfer their revenue to the main concentration account. This creates intercompany claims for Great Atlantic & Pacific to the operating company Debtors. (3) Intercompany Loans. A well-documented system of intercompany loans and capital contributions is being maintained to facilitate cash flow among the Debtors. The Debtors maintain records of all intercompany transactions, including fund transfers, and can ascertain, trace and account for those transactions. At the same time, if the intercompany transactions were to be discontinued, the cash management system and related administrative controls would be disrupted, according to Paul Basta, Esq., at Kirkland & Ellis LLP, in New York. Accordingly, the Debtors sought and obtained interim court order authorizing them to continue performing under and honoring the intercompany transactions. The interim order, however, requires the Debtors to keep records of any postpetition intercompany transfers and services that occur during their Chapter 11 cases; put in place accounting procedures to identify and distinguish between prepetition and postpetition intercompany transactions and to track postpetition intercompany transactions; and provide access to those records and procedures to JP Morgan Chase Bank N.A. All intercompany claims arising after December 12, 2010, will be accorded administrative expense priority, according to the interim order. The deadline for filing objections to the final approval of the Debtors' request is January 4, 2010. If an objection is timely filed and served, that objection will be set for hearing on January 10, 2010. ----------------------------------------------------------------- [00016] DEBTORS' MOTION TO HONOR PREPETITION EMPLOYEE OBLIGATIONS ----------------------------------------------------------------- The Debtors seek approval from the U.S. Bankruptcy Court for the Southern District of New York to pay the pre-bankruptcy claims of their employees. The claims include unpaid wages and salaries of their full-time and part-time employees, temporary employees and independent contractors. The Debtors estimate that they owe about $18.15 million to full- time and part-time employees on account of accrued wages and salaries earned prepetition. Meanwhile, as much as $71,000 is owed to independent contractors, and about $9,000 to Unitemp Temporary Personnel. As of December 12, 2010, the Debtors have about 13,016 full-time employees, 27,672 part-time employees, and three temporary employees, who are provided to the Debtors through Unitemp. The Debtors also intend to pay these amounts owed as of December 12, 2010: Expenses Amount -------- ---------- Payroll Taxes $8,560,000 Reimbursable Expenses $111,000 AmEx Corporate Card Expenses $27,000 Relocation Program Expenses $210,000 The Debtors maintain a relocation program, using a third-party administrator, for employees who are required to move to a new location within the United States after being hired or transferred by the Debtors. To streamline payment of reimbursable expenses, the Debtors have an American Express corporate account under which credit cards are available for use by five employees to pay for certain business-related expenses and for use by the Debtors as a business travel account. The Debtors also seek court approval to continue their management incentive plan, employee benefit programs, union employee benefit program, and retirement plans. As of their bankruptcy filing, the Debtors estimate that they owe these amounts under the employee benefit program: Programs Amount -------- ---------- Insurance Plans $50,000 Long-Term Disability Plan $21,000 Short-Term Disability Plan $84,000 Workers' Compensation Program $433,000 The Debtors did not disclose how much is owed under the Management Incentive Plan and the Union Employee Benefit Program. Meanwhile, they estimate that about $429,000 has been withheld from participating employees' paychecks and is owing for 401(k) Savings Plan Contributions and about $9,000 is owed on account of employer matching contributions. To the extent any of the Debtors' employees asserts claims under the Workers' Compensation Program, the Debtors propose that the automatic stay be lifted to permit that employee to proceed with his claims under the program. In connection with the proposed payment of pre-bankruptcy claims, the Debtors also ask the Court to issue an order directing financial institutions to honor and pay all replacement checks or wire transfer requests. ----------------------------------------------------------------- [00017] DEBTORS' MOTION TO CONTINUE CUSTOMER PROGRAMS ----------------------------------------------------------------- The Debtors seek interim court approval to maintain and administer their customer programs. The Debtors have maintained the programs in the ordinary course of business to maximize customer loyalty. The programs aim to reward customer loyalty and provide incentives to buy selected products from the Debtors' stores. These programs include: (1) Return and Exchange Policies Consistent with industry practice, the Debtors have traditionally maintained return, refund, exchange, price- guarantee, and rain-check policies with respect to both cash and credit purchases to accommodate their customers' needs. These policies assure the Debtors' customers they will be "made whole" if merchandise is inadequate, damaged or defective, incorrectly processed or unavailable. (2) State Lotteries Many of the Debtors' stores sell lottery tickets and similar games of chance sponsored by the states of Connecticut, New York, Pennsylvania, Maryland, Massachusetts and New Jersey. The Debtors "cash out" winning lottery tickets in amounts no greater than $600 in most of those states, and no greater than $1,000 in Pennsylvania. The Debtors may then present the honored lottery ticket to the state regulatory agency for reimbursement. (3) Sales Promotions The Debtors conduct sales promotions at selected stores or banners. These promotions include "buy one get one free" programs, a rebate if a customer purchases a certain amount of merchandise, and sweepstakes programs. (4) Coupon Program The Debtors maintain a coupon redemption program pursuant to which they honor certain third-party coupons distributed to their customers; and the Debtors' own coupons that are included in advertising circulars or distributed in their stores. When a customer redeems a valid third-party coupon in one of the Debtors' stores, the Debtors deduct the amount of the coupon, or such other deduction as may be advertised, from the item's purchase price. Third-party coupons are then processed and remitted to a third-party intermediary, who in turn collects the amounts from the various vendors and wires the Debtors the value of the coupons collected. (5) Prescription Drug Program The Debtors also honor certain third-party-paid prescription drug programs, pursuant to which eligible customers can purchase certain drugs at the pharmacies located in the Debtors' stores at a reduced price. The Debtors bill the balance of the cost of the prescription drug and the co-pay amount to various insurance companies. (6) Gift Card Program The Debtors maintain a program by which their customers can purchase gift certificates or cards from their various banners that can be redeemed for merchandise at a later date. As of November 29, 2010, about $10,500,000 in issued gift cards were outstanding. (7) Reward Card Program The Debtors offer their customers an opportunity to enroll in a customer reward card program which entitles them to receive certain benefits based on the amount they spend at the Debtors' stores. Each of the Debtors' banners provides its own reward card program, although all reward cards are honored across the Debtors' stores. Customers enrolled in the reward card program may present their cards at checkout and receive instant discounts on hundreds of items, specially marked throughout the store. As of December 12, 2010, about 10 million unique reward cards were issued pursuant to the program. The Debtors do not typically accrue a liability on account of these programs, rather, deducting any customer savings provided through these programs from revenue otherwise generated at the point of sale. (8) Money Transfer and Money Order Program Many of the Debtors' stores are pick-up locations for wire transfers sent from third parties electronically through Western Union North America to an identified transferee. Similarly, the Debtors sell and honor money orders issued by certain third parties, including Western Union. (9) Charitable Donations From time to time, the Debtors will make donations to certain charitable organizations or otherwise support community organizations and other groups. The Debtors are currently administering a donation drive in partnership with the Island Harvest hunger relief organization. They also operate two charitable foundations: The Waldbaums Foundation and the Pathmark We Care Foundation. ----------------------------------------------------------------- [00018] DEBTORS' MOTION TO PAY PREPETITION CRITICAL VENDOR CLAIMS ----------------------------------------------------------------- The Debtors seek interim court approval to earmark as much as $62 million to pay the pre-bankruptcy claims of so-called critical vendors, and another $5 million to pay claims that are entitled to priority. The critical vendors include merchandisers which directly supply products to the Debtors' store locations via direct-store- delivery or similar supply processes; brokerage firms and other suppliers which provide the Debtors "private label" needs; advertisers and printers and other service providers. As of December 12, 2010, the Debtors owe these vendors around $62 million, including claims totaling about $55 million that may be entitled to priority. The $62 million is about 29% of the Debtors' accrued payables of approximately $212 million. "The Debtors' business could not function, let alone generate the cash required to implement a restructuring plan, if the Debtors were cut-off from inventory supplied by their critical vendors," says Frederic Brace, the Debtors' chief administrative officer. "The Debtors' operations could be materially impaired if they were denied access to trade credit from these parties," Mr. Brace says in court papers. The Debtors' lawyer, Paul Basta, Esq., at Kirkland & Ellis LLP, in New York, says absent payment of the vendor claims, it would be difficult for the Debtors to maintain "sufficient levels of inventory with the variety, freshness, and quality required by their customers." Mr. Basta further says that the Debtors will make the payments only to the extent necessary to preserve business stability and maintain liquidity or access to inventory. The Debtors also propose to implement a process for the payment of these pre-bankruptcy claims. A copy of the document detailing the proposed payment process is available without charge at http://bankrupt.com/misc/A&P_PaymentProcess.pdf In return for paying those claims, the vendor will be required to enter into trade agreements that would ensure the continued supply of goods or services to the Debtors. In connection with the payment of vendor claims, the Debtors have developed and implemented a postpetition process or protocol to review and challenge any payment requested or proposed on account of vendor claims. Under the protocol, requests for "critical vendor" treatment, including payment on account of pre-bankruptcy claims, will be routed through a centralized control center staffed by specifically identified executives and advisors including Kirkland and the Debtors' management consultant, Huron Consulting Group. All aspects of any proposed payment to a vendor will be scrutinized for the amount of payment at issue, the terms offered by the particular vendor, the business need for the goods or services, among other things. Material business terms including proposed payments require written approval by specifically-designated executives, following review and oversight by the Debtors' professionals. Under the protocol, all payments of more than $100,000 require personal approval from the Debtors' chief restructuring officer. They must also be documented pursuant to an executed trade agreement, with any specific exception from this requirement to be made only by the CRO. Payment may only be physically executed by one, specifically- designated member of the Debtors' treasury staff when the payment process has been completed and upon presentation of completed documentation. ----------------------------------------------------------------- [00019] DEBTORS' MOTION TO PAY WAREHOUSING CHARGES, LIEN CLAIMS ----------------------------------------------------------------- The Debtors seek court approval to earmark as much as $3.64 million to pay warehousing charges and claims of so-called "miscellaneous lien claimants." Of the $3.64 million, $240,000 will be used to pay warehousing services that were provided to the Debtors prior to their bankruptcy filing while $3.4 million will be paid to the miscellaneous lien claimants. The miscellaneous lien claimants include third parties tapped by the Debtors to perform repairs of their electrical system, refrigeration equipment, food service equipment, among other things. They could potentially assert liens against the Debtors' property on account of their claims. "Unless the Court authorizes the Debtors to pay the lien claimants, it is unlikely the Debtors will continue to have access to the merchandise in possession of the lien claimants," says the Debtors' lawyer, Paul Basta, Esq., at Kirkland & Ellis LLP, in New York. "Failure to satisfy the lien claimants' claims could have a material adverse effect that could have severe repercussions on the Debtors' retail business operations to the detriment of the creditors," Mr. Basta says in court papers. Mr. Basta also seeks a court ruling to grant administrative expense priority to all obligations of the Debtors arising from the postpetition delivery of merchandise. PACA Procedures Some of the Debtors' suppliers will be eligible to assert potential claims under the Perishable Agricultural Commodities Act of 1930. In exercising their rights under PACA, claimants may impose a trust on some merchandise sold in the Debtors' stores, granting them priority ahead of all other creditors. PACA provides various protections to fruit and vegetable sellers, including the establishment of a statutory constructive trust consisting of a buyer's entire inventory of food or other derivatives of perishable agricultural commodities, and the proceeds related to any sale of those commodities. Assets subject to a PACA trust are preserved as a non-segregated floating trust and may be commingled with non-trust assets. A PACA trust is not property of a debtor's estate. The Debtors estimate that $3.272 million has accrued on account of PACA claims as of December 12, 2010. To ensure that the supply of merchandise continues unimpeded, the Debtors propose to implement a process for the reconciliation and disposition of PACA claims. Under the proposed process, claimants seeking the protection of a PACA trust must deliver a valid and timely notice to the Debtors. The Debtors will send a copy of the order approving the proposed payment of lien claims to all entities and persons who have delivered a valid and timely notice. If the Debtors determine that a claim asserted in the notice is valid, they will pay that claim as an administrative expense. Any claimant that accepts payment from the Debtors on account of its allowed claim will be deemed to have waived, released, and discharged its claims. Thirty days from entry of the final order approving the proposed procedures, and every 30 days thereafter, the Debtors will file a "PACA settlement report" with the Court listing all allowed PACA claims for the preceding 30 day period. After the period ending 90 days after entry of the PACA order, the Debtors will file with the Court a "disputed claim report" that lists the claims, which they believe are invalid. Claimants objecting to the Debtors' determination of their claims listed in the disputed claim report must provide the Debtors with evidence or documentation demonstrating the basis for the dispute. Objections must be served no later than the 20th day following the date the disputed claim report is filed. With respect to each claim in the disputed claim report as to which no objection is timely received, that claim will be deemed invalid without further court order, and will not be entitled to the priorities provided under PACA. With respect to each claim in the disputed claim report as to which an objection is timely received and the parties resolve the objection, that claim will be treated as an allowed or disallowed claim, in whole or part, as agreed to by the parties without further court order upon the filing of the settlement report. With regards to each claim in the disputed claim report as to which an objection is timely received and the objection cannot be resolved, that claim will not be deemed valid or invalid except upon order of the Court. If a resolution is not reached by at least 60 days after the date of the disputed claim report, or such later period as may be agreed to by the claimant, the Debtors will arrange for a court hearing. ----------------------------------------------------------------- [00020] DEBTORS' MOTION TO HONOR DEPOSIT, TRUST FUND OBLIGATIONS ----------------------------------------------------------------- The Debtors seek the Court's authority to release certain funds held in trust and to continue to perform and honor obligations under their prepetition consignment and deposit arrangements in the ordinary course of business, in a manner consistent with past practice. A. Proceeds from Sale of Lottery Tickets Many of the Debtors' stores sell lottery tickets and similar games of chance sponsored by various states. The Debtors estimate that as of the Petition Date, they owe the various state lottery agencies $643,949, and seek authority to release to the Lottery Agencies any prepetition Lottery proceeds identified after reconciling their accounts. B. Gift Card Proceeds The Debtors sell gift cards pursuant to that certain Safeway Marketing Services Gift Card Alliance Partners Program Agreement dated December 31, 2003, by and between the Debtors and Blackhawk Network, Inc., pursuant to which Blackhawk serves as an intermediary between the Debtors and the retailers. The Debtors estimate that as of the Petition Date, they do not owe Blackhawk any Gift Card Proceeds, but seek authority to release to Blackhawk any prepetition Gift Card Proceeds identified after reconciling their accounts. C. Money Transfers and Money Orders The Debtors are parties to that certain Western Union North America Agency Agreement (the WUNA Agreement) dated September 30, 2008, between the Debtors and WUNA, a unit consisting of Western Union Financial Services, Inc. and Integrated Payments Systems, Inc. Pursuant to the WUNA Agreement, many of the Debtors' stores allow customers (i) to wire money electronically throughout the United States and Mexico, and (ii) to purchase money orders from the stores for cash in face amounts up to $1,000. The Debtors estimate that as of the Petition Date they do not owe WUNA any Wire Transfer Funds and Money Order Funds, but seek authority to release to WUNA any prepetition Wire Transfer Funds and Money Order Funds identified after reconciling their accounts. D. Consignment Arrangements Certain of the Debtors are parties to various Consignment Arrangements. Under the Consignment Arrangements, certain of the Debtors' vendors provide the Debtors with products that are to be sold to the Debtors' customers in the ordinary course of business, and the Debtors do not pay the Consignment Vendors for the goods until the products are actually sold. The Debtors generally remit the proceeds from the sale of a consigned good to the Consignment Vendors on a weekly basis. E. Deposit Arrangements Certain of the Debtors are parties to Deposit Arrangements including Coin Deposit Programs with Coinstar, Inc., and Bottle Deposit Programs with TOMRA East, Inc. Under the Deposit Arrangements, certain of the Debtors' vendors install in the Debtors' stores reverse vending machines where the Debtors' customers may deposit coins and bottles for payment from the Debtors in the ordinary course of business. The machine operators then reimburse the Debtors for the Coin/Bottle Deposit Proceeds, and also pay the Debtors a commission. The Debtors generally receive their reimbursements and commissions from on a monthly basis. To uphold their reputation for reliability and to preserve the loyalty, goodwill and support of their customers, the Debtors must maintain their Lottery Programs, Gift Card Sales, Money Transfers and Money Orders, Consignment Arrangements, and Deposit Arrangements in the ordinary course of business and honor their obligations under these consignment and deposit arrangements, explains Paul M. Basta, Esq., at Kirkland & Ellis LLP, in New York. Not only do the Debtors earn money directly from the Lottery Programs, Gift Cards, WUNA, the Consignment Vendors, and the Deposit Arrangements, but the Debtors also are compensated indirectly because these programs and products attract customers to the Debtors' stores and may incrementally increase revenue at the point of sale, Mr. Basta says. "I believe such activities will encourage the Debtors' Customers to continue to purchase the Debtors' products and, ultimately, lead to increased revenue," asserts Frederic F. Brace, the Debtors' chief administrative officer and chief restructuring officer. ----------------------------------------------------------------- [00021] NYSE TO SUSPEND TRADING IN GREAT ATLANTIC & PACIFIC ----------------------------------------------------------------- NEW YORK, New York -- December 13, 2010 -- NYSE Regulation, Inc. announced that it determined that the common stock of The Great Atlantic and Pacific Tea Company, Inc. -- ticker symbol GAP -- as well as its 9 3/8% Senior Quarterly Interest Bonds due August 1, 2039 (QUIBS) -- ticker symbol GAJ -- should be suspended immediately. NYSE Regulation has determined that the Company is no longer suitable for listing. This decision was reached in view of the Company's December 12, 2010 announcement that it has filed a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S Bankruptcy Court for the Southern District of New York. NYSE Regulation noted the uncertainty as to the timing and outcome of the bankruptcy process, as well as the ultimate effect of this process on the Company's common stockholders. The Company has a right to a review of this determination by a Committee of the Board of Directors of NYSE Regulation. Applications to the Securities and Exchange Commission to delist the issues are pending the completion of applicable procedures, including any appeal by the Company of the NYSE Regulation staff's decision. The NYSE noted that it may, at any time, suspend a security if it believes that continued dealings in the security on the NYSE are not advisable. ----------------------------------------------------------------- [00022] S&P CUTS A&P RATING TO 'D' AFTER CHAPTER 11 FILING ----------------------------------------------------------------- * U.S. grocery store operator Great Atlantic & Pacific Tea Co. Announced that it filed a voluntary petition under Chapter 11 of the Bankruptcy Code. * Standard & Poor's Ratings Services is lowering all ratings on the company, including the corporate credit rating, to 'D'. NEW YORK, New York -- December 13, 2010 -- Standard & Poor's Ratings Services lowered its corporate credit rating on Montvale, N.J.-based Great Atlantic & Pacific Tea Co. Inc. to 'D' from 'CC'. All issue-level ratings on the company's debt issues were also lowered to 'D'. The recovery ratings on the company's debt issues remain unchanged. The ratings action follows the company's filing of a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code. The 'D' rating on A&P reflects the company's default due to its filing for Chapter 11 bankruptcy protection. A&P will have access to $800 million of debtor-in-possession financing, which S&P expects will allow it to maintain operations during the Chapter 11 restructuring while the company addresses its structural cost issues and reorganizes its capital structure. As of Sept. 11, 2010, the company has just under $1.5 billion of debt. ----------------------------------------------------------------- [00023] STANDARD & POOR'S DISCLOSES CHANGES TO U.S. INDEX ----------------------------------------------------------------- NEW YORK, New York -- December 13, 2010 -- Standard & Poor's will make the following changes to the S&P SmallCap 600 index: The Great Atlantic & Pacific Tea Company Inc. will be removed from the S&P SmallCap 600 index after the close of trading on Tuesday, December 14. The company has filed for Chapter 11 bankruptcy protection. Great Atlantic & Pacific Tea Company's place in the S&P SmallCap 600 will be taken by Saul Centers Inc. (NYSE: BFS) after the close of trading on Friday, December 17. The index will trade with 599 constituents until that time. Standard & Poor's will monitor these transactions, and post any relevant updates on its website: www.standardandpoors.com. Saul Centers is a REIT that operates and manages shopping center and office properties. Headquartered in Bethesda, MD, the company will be added to the S&P SmallCap 600 GICS (Global Industry Classification Standard) Retail REITs Sub-Industry index. Following is a summary of the changes: S&P SmallCap 600 Index -? December 14, 2010 GICS GICS Company Economic Sector Sub-Industry ------- --------------- ------------ Deleted Great Atlantic & Consumer Staples Food Retail Pacific Tea Company S&P Smallcap 600 Index -? December 17, 2010 GICS GICS Company Economic Sector Sub-Industry ------- --------------- ------------ Added Saul Centers Financials Retail REITs Additions to and deletions from an S&P equity index do not in any way reflect an opinion on the investment merits of the companies concerned. About S&P Indices S&P Indices, a part of McGraw-Hill Financial, is the world's leading index provider maintaining a wide variety of investable and benchmark indices. Over $1.25 trillion is directly indexed to Standard & Poor's family of indices, which includes the S&P 500, the world's most followed stock market index, the S&P/Case- Shiller Home Price Indices, the leading measure of U.S. home prices, the S&P Global BMI, an index with approximately 11,000 constituents, the S&P GSCI, the industry's most closely watched commodities index, and the S&P National AMT-Free Municipal Bond Index, the premier investable index for U.S. municipal bonds. For more information, please visit www.standardandpoors.com/indices. ----------------------------------------------------------------- [00024] MOODY'S DOWNGRADES A&P PROBABILITY OF DEFAULT RATING TO D ----------------------------------------------------------------- NEW YORK, New York -- December 13, 2010 -- Moody's Investors Service downgraded Great Atlantic & Pacific Co. Inc.'s Probability of Default Rating to D from Caa3. The downgrade was prompted by A&P's December 12, 2010 announcement that it voluntarily entered Chapter 11 in the United States Bankruptcy Court prior to its next scheduled interest payment. Ratings Rationale Subsequent to today's actions, Moody's will withdraw the ratings because A&P has entered bankruptcy. See Moody's Withdrawal Policy on moodys.com. The following ratings were downgraded and will be withdrawn: Probability of Default Rating to D from Caa3 Corporate Family Rating to Caa3 from Caa2 Senior secured notes to Caa2 (LGD 3, 37) from Caa1 (LGD 2, 21%) Senior convertible notes to Ca (LGD 5, 74%) from Caa3 (LGD 4, 53%) Senior unsecured notes to Ca (LGD 5, 74%) from Caa3 (LGD 4, 53%) Senior unsecured shelf to (P)Ca (LGD 5, 74%) from (P)Caa3 (LGD 4, 53%) Subordinated shelf of (P)Ca (to LGD 6, 97% from LGD 5, 85%) Preferred shelf to (P)C (LGD 6, 98%) from (P)Ca (LGD 5, 89%) The following ratings will be withdrawn: Junior subordinated shelf of (P)Ca (to LGD 6, 97% from LGD 5, 85%) Speculative Grade Liquidity rating at SGL-4 The principal methodologies used in this rating were Global Retail Industry published in December 2006, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. ----------------------------------------------------------------- [00025] A&P SEEN USING BANKRUPTCY TO CLOSE OVER 100 STORES ----------------------------------------------------------------- Analysts said The Great Atlantic and Pacific Tea Co. may have to shut a quarter or more of its stores if it wants to survive, according to a December 13, 2010 report by Reuters. Analysts expect A&P to take a hard look at its vendor contracts, leases and other operational costs, balance sheet and finances. Joe Stauff, who analyzes distressed companies for Susquehanna International Group, said the company could close more than 100 of its 395 stores. The stores are operating under the names of A&P, Waldbaum's, SuperFresh, Pathmark, Food Basics and The Food Emporium in the northeastern United States. Supermarket consultant, David Livingston of Wisconsin-based DJL Research, said A&P "tended to overpay for everything." "From vendors to landlords they were always an easy mark," Reuters quoted Mr. Livingston as saying. "They just made one blunder after another." A&P, however, has some important backers including Ronald Burkle of the Yucaipa Companies LLC who invested in the company's preferred stock in 2009 to fund a revival. While that investment is likely wiped out, Mr. Burkle may hold debt positions that could make him a significant player in the bankruptcy, Reuters reported. If Mr. Burkle has bought secured debt that gets paid first in a bankruptcy, "it says he wants to be a player and wants to control the company and do the Eddie Lampert thing," said Leah Hartman, an analyst with Connecticut-based CRT Capital. Ms. Hartman also estimated up to 100 stores being closed. Mr. Lampert is the billionaire hedge fund manager who took control of Kmart when it emerged from bankruptcy in 2003 and later merged it with Sears Roebuck & Co. *** End of Issue No. 2 ***