Lone Star-backed supermarket collapses into bankruptcy

Lone Star paid $660m for regional US supermarket chains Bi-Lo and Bruno's in 2004. In 2007, the private equity firm began trying to sell Bi-Lo, a Southern US supermarket operator that has been unable to refinance a maturing term loan amid current credit market conditions.

Lone Star-backed supermarket operator Bi-Lo filed for bankruptcy Monday ahead of $360 million of debt that comes due on 26 March.

The company, which operates 215 supermarkets in South Carolina, North Carolina and Georgia, has secured a $100 million debtor-in-possession loan from GE Capital that will keep it operating through the reorganisation process.

“In a normal credit environment we would have expected to refinance the maturing term loan on reasonable terms in the ordinary course of business,” Michael Byars, president and chief executive officer of Bi-Lo, said in a statement. “Unfortunately, the current credit environment is very challenging.”

In a normal credit environment we would have expected to refinance the maturing term loan.

Michael Byars

Bi-Lo will attempt to reorganise in Chapter 11 and emerge from bankruptcy as an “even healthier, stronger company”, according to a company letter to customers.

Dallas, Texas-based Lone Star purchased Bi-Lo and Bruno’s Supermarkets from Royal Ahold, the Dutch food retailer, in 2004 in a deal valued at $660 million in cash.

The firm, with more than $24 billion of capital under management, began trying to sell Bi-Lo in 2007. Lone Star spun out Bruno’s from Bi-Lo the same year, creating a company with 23 supermarkets under the Bruno’s banner, 42 as Food World and two Food Max stores.

Numerous private equity firms have seen portfolio companies go bankruptcy over the past year, including Sun Capital Partners, which had its company The Drug Fair Group stumble into bankruptcy last week. TPG lost $830 million when its portfolio company, Aleris International, a producer of aluminium products, collapsed into bankruptcy earlier this month. TPG has been considering join a lenders group that is extending $1 billion to Aleris as part of a bankruptcy financing package.