Fleming Companies, Inc.
August 23, 2004
Compass Advisers, LLP ("Compass") was engaged to advise the Official Committee of Unsecured Creditors (the "Creditors Committee") during the Chapter 11 bankruptcy restructuring of Fleming Companies, Inc. ("Fleming"), a multi-billion dollar business and a leading supplier of branded and private-label grocery and nonfood items to retailers nationwide. Fleming's wholesale food distribution business ("Fleming Wholesale") was declining rapidly, as customers accounting for billions of dollars in annualized sales were defecting at an alarming rate. Fleming Wholesale's vendors were requiring two-week cash-in-advance terms to purchase inventory, and the Fleming secured and DIP (debtor-in-possession) lenders would not permit the company to use DIP loans for the inventory prepayments its vendors required. The cash outflow that resulted from these circumstances structurally doomed Fleming Wholesale and the Fleming estates to a continuing cycle of lower fill rates and lost customers that placed Fleming Wholesale's business and the Fleming estates in a downward spiral. To make matters worse, Fleming was commingling the cash of Core Mark International ("Core-Mark"), Fleming's convenience store distribution business and its only remaining viable business, placing it on the same destructive path.
From the beginning of Fleming's bankruptcy filing, secured lenders had sought the sale of Core-Mark as a means to ensure their repayment, regardless of the consequences to unsecured creditors. Fleming had acquiesced to a Core-Mark sale process to ensure the continued cooperation of the secured lenders, as it initially sought to stabilize Fleming Wholesale with a plan of reorganization centered on reorganizing Fleming Wholesale and selling Core-Mark. Compass professionals developed a Core-Mark financial projection model to evaluate the potential recoveries available for unsecured creditors, which demonstrated that the business was viable and that there could be substantial improvements in enterprise value through a Core-Mark focused plan of reorganization.
Compass monitored a parallel sale process for Core-Mark proposed by Fleming in response to reduced liquidity; ultimately, Compass was able to stop the Core-Mark sale process, its attendant distractions, expense and likely damaging economic result. Instead, Compass helped Fleming focus on a plan of reorganization centered on Core Mark, rather than the Fleming Wholesale grocery business.
The Creditors Committee, through Compass, sought out several prospects who would have an interest in acquiring all or part of Fleming Wholesale. Compass directly facilitated discussions with several of Fleming's competitors, and proposed a supply agreement arrangement to stabilize the wholesale grocery business.
One of the industry participants engaged in discussions with Compass was C&S Wholesale Grocers, Inc. ("C&S"). Compass helped C&S realize that there could be a substantial opportunity in connection with a supply agreement and potential acquisition of Fleming Wholesale, and persuaded C&S to reconsider its previous decision not to proceed. Working in a cooperative and complementary manner with Blackstone, Compass helped C&S achieve greater certainty for its bid, a decision which at the time was calculated to provide more than $100 million of value in excess of the second leading bidder. The result was the sale of Fleming Wholesale to C&S, which closed on August 23, 2003.
Compass assisted the Creditors Committee as its investment banking advisor throughout the bankruptcy proceedings, developing strategic alternatives to those proposed by Fleming to ensure the maximum possible recovery to unsecured creditors, assisting in negotiations, providing due diligence, and conducting comprehensive valuation analyses and recovery estimates. Compass assisted in the reorganization of more than $4.0 billion of pre petition liabilities and claims, and preserved Core-Mark as a viable reorganized business with revenues of approximately $4.2 billion, projected 2005 EBITDA of $44.3 million and the preservation of approximately 3,500 jobs. As a result, Fleming paid in full the secured pre-petition, DIP lenders, and other administrative and priority creditors from cash on hand and a new exit financing; settled all claims with PBGC; settled with the reclamation creditors and established the Reclamation Creditors Trust for their benefit; and earmarked the equity of Reorganized Core-Mark for distribution to unsecured creditors, establishing a Post Confirmation Trust where all other estate assets and claims were settled and excess value distributed to unsecured creditors.
Absent Compass' role and that of the Creditors Committee, there would have been no recovery for unsecured creditors. Compass was instrumental in proposing, acting upon and driving to fruition nearly all of the key events that created value, preserved value or prevented dissipation of value in these cases. The company exited Chapter 11 on August 23, 2004.