posted by deep throat
Bankruptcy Option No Easy Fix for Co-OpAt Sunday's standing-room-only community meeting on the Co-Op's future, two different factions on the board laid out opposing options for the membership to vote on.
No matter which option is ultimately selected, the Co-Op and its democratic community principles will no longer exist, whether the 55th Street store stays in operation or not.
Further, any funds raised in a "capital drive" not only will probably never be refunded, but may very well end up helping to keep alive a store that winds up owned by someone other than the remaining cooperative members.
And, if the die-hard faction's proposal to go into bankruptcy and reject the University's bail-out is chosen, the high risk of eventual liquidation of the Co-Op's assets means that the chances are higher that the neighborhood will go longer without any grocery store at all. No one brought up this potential consequence of the bankruptcy route.
But first, let's review the afternoon's events.
It was cause for some concern that the audience was clearly composed mostly of die-hard Co-Op supporters who did not understand the magnitude of the institution's financial distress, the concrete implications of bankruptcy proceedings, or the complicity of the retail cooperative Certified in the Co-Op's troubles.
The first option presented, also known as "Sorry Charlie" in our earlier post, involves the generous debt workout plan that the University has proposed. This approach would allow the University to buy out the remainder of the 55th Street store lease (through 2013) and forgive the 14 months of back rent that the Co-Op still owes. The 55th Street store would close, and a new grocery store would open within 14 days of the Co-Op's exit. The Co-Op would take the proceeds from the buyout and pay off the 47th Street lease with Certified, and pay off its vendors.
While the University has purportedly had discussions with several grocers, it has clearly stated that whichever grocer ends up moving into 55th Street must make significant improvements to the store space. With this option, the Co-Op's last remaining store would likely be shut by the end of January, and a new grocer would open up in that freshened space within two weeks.
The second option, also known as "Rehab," means the Co-Op would file for Chapter 11 bankruptcy, keep the 55th Street store in operation, and attempt to clean its financial house. However, this option is fraught with 6 very big "ifs."
The 6 Very Big IFs:
Rehab will only work out 1) if the Co-Op is able to get an approximately $2 million loan; 2) if Certified will agree to a $1 million buyout of the 47th Street lease; 3) if the Co-Op can raise "substantial" pledges from the membership for the capital campaign; 4) if General Manager Brandfon stays on and continues to improve operations; 5) if shoppers start spending more food dollars at the store; and 6) if it can pay off all its creditors 100%.
Even if all of the above conditions are met, make no mistake about it: this alternative would only save the existing grocery store at 55th Street -- but not the current cooperative management or ownership structure -- and the store would wind up in the possession of whichever lender is foolhardy enough to loan the Co-Op more money. It does not allow the membership to retain control of the Co-Op during bankruptcy proceedings.
In this Chapter 11 debtor-in-possession arrangement, the new (post-bankruptcy petition) creditor will take precedence over pre-petition creditors and shareholders (the membership), and will be in the position to oversee operations of the 55th Street store.
As one Hyde Park resident, Mark Johnson, pointed out in the meeting, the creditors will have a lot of influence on the bankruptcy judge, not the Co-Op members. In this bankruptcy situation, the Co-Op will be answering to its newest creditor, not to its membership. So much for the democratic control that the Co-Op likes to stand for.
If the Co-Op pursues rehab and is not able to secure the considerable financing necessary, then the default would be bankruptcy and liquidation. In this case, the 55th Street store would be shut down, the court would appoint an independent party to liquidate all remaining assets and pay creditors in order of seniority.
This default situation would also likely make it very difficult for the 55th Street landlord, the University, to line up a new grocer on short notice, leaving the neighborhood potentially without any grocery store for longer than 14 days.
Note: the Co-Op has thus far not been able to secure financing for rehab. It must be in place by 12/17/2007, which is when the University is likely to file for foreclosure notice on the 55th Street store.
So, the clock is ticking. The National Cooperative Bank is willing to entertain the possibility of loaning the Co-Op $2 million, which would allow the Co-Op to enter Chapter 11, and will be voting on it Monday 11/19. But before anyone gets too excited, the NCB's loan is itself contingent upon Certified Grocers agreeing to a $1 million buyout of the 47th Street lease. As President Poueymirou pointed out, Certified has not in the past and is not currently willing to negotiate on this point.
In the earlier Keystone Co-Op posts, we had originally thought the board would endorse the rehab option. After the University entered the scene with its extremely generous debt workout offer, we then believed the board was likely to move in that direction. As it turns out, the board is split on these two approaches.
With the University's debt workout plan, the biggest uncertainty is which grocer would move into the 55th Street store space. However, I'm fairly confident that any new grocer would be an improvement on how the 55th Street store has been run over the last five years.
With the rehab option, on the other hand, there is more uncertainty and risk concerning the ultimate outcome. Going down that path could result in 1) a quick liquidation, 2) a long, slow death if the capital campaign fails or if GM Brandfon leaves, or 3) ownership by creditors even after emerging from bankruptcy if the Co-Op fails to pay off its creditors 100%. In this last scenario, the members would be left out in the cold, and their shares would still be worthless.
Interestingly enough, many members who commented in the meeting seemed willing to view the University as the great villain in this drama, but no one was nearly as critical about Certified, which in my view has been the biggest obstacle keeping the Co-Op from regaining any financial footing.
The University has cut the Co-Op plenty of slack, to the tune of 14 months of missing rent payments, while Certified has been quick to cut off food shipments as soon as the 47th Street rent payment is late. As President Poueymirou related, the Co-Op tried to stop its rent payment to Certified only last month, but Certified immediately cut off a food shipment.
As a result, the only reason the Co-Op has been able to continue to stock its shelves and stay in business is because it's stiffing the University on rent in order to keep up with its lease with Certified. In this case, the membership should be thanking the University.
Big kudos go to President Poueymirou, Treasurer Lowenthal, and Alderman Toni Preckwinkle for championing the debt workout plan -- the most realistic option that will bring a new grocer to the neighborhood in an orderly and efficient manner. While they are in a difficult position of having to advocate for the end of a Hyde Park institution, this is the most financially responsible choice for members.
On the other hand, Secretary Withrow and Director Stanek fueled hope and promoted the rehab option, without explicitly outlining the risks associated with that approach. In the vast majority of bankruptcy cases, the pre-petition shareholders -- such as shareholders -- are left with a big fat zero by the end of the reorg. Chances are very slim that members will get any value for their stock, or enjoy the right to participate in the management of the business.
That's because control over the Co-Op during the reorg will reside with the creditors, not the members. For all practical purposes, it will cease to be a cooperative. Rehab promoters ask members to invest more money in the capital campaign, while chances of ever realizing a return are extremely low. If you are inclined to make a pledge, I'd suggest you think of it as a donation.
Needless to say, this vote is very important and all Co-Op members should make sure their voice is heard on the options. Ballots will be mailed starting Wednesday 11/21. Having said that, the membership vote will only be taken into advisory by the board. In the end, the board is authorized to make the decision, and it may have to do so very quickly in those few days before 12/17.
No matter which option is ultimately selected, the Co-Op and its democratic community principles will no longer exist, whether the 55th Street store stays in operation or not.
Further, any funds raised in a "capital drive" not only will probably never be refunded, but may very well end up helping to keep alive a store that winds up owned by someone other than the remaining cooperative members.
And, if the die-hard faction's proposal to go into bankruptcy and reject the University's bail-out is chosen, the high risk of eventual liquidation of the Co-Op's assets means that the chances are higher that the neighborhood will go longer without any grocery store at all. No one brought up this potential consequence of the bankruptcy route.
But first, let's review the afternoon's events.
It was cause for some concern that the audience was clearly composed mostly of die-hard Co-Op supporters who did not understand the magnitude of the institution's financial distress, the concrete implications of bankruptcy proceedings, or the complicity of the retail cooperative Certified in the Co-Op's troubles.
The first option presented, also known as "Sorry Charlie" in our earlier post, involves the generous debt workout plan that the University has proposed. This approach would allow the University to buy out the remainder of the 55th Street store lease (through 2013) and forgive the 14 months of back rent that the Co-Op still owes. The 55th Street store would close, and a new grocery store would open within 14 days of the Co-Op's exit. The Co-Op would take the proceeds from the buyout and pay off the 47th Street lease with Certified, and pay off its vendors.
While the University has purportedly had discussions with several grocers, it has clearly stated that whichever grocer ends up moving into 55th Street must make significant improvements to the store space. With this option, the Co-Op's last remaining store would likely be shut by the end of January, and a new grocer would open up in that freshened space within two weeks.
The second option, also known as "Rehab," means the Co-Op would file for Chapter 11 bankruptcy, keep the 55th Street store in operation, and attempt to clean its financial house. However, this option is fraught with 6 very big "ifs."
The 6 Very Big IFs:
Rehab will only work out 1) if the Co-Op is able to get an approximately $2 million loan; 2) if Certified will agree to a $1 million buyout of the 47th Street lease; 3) if the Co-Op can raise "substantial" pledges from the membership for the capital campaign; 4) if General Manager Brandfon stays on and continues to improve operations; 5) if shoppers start spending more food dollars at the store; and 6) if it can pay off all its creditors 100%.
Even if all of the above conditions are met, make no mistake about it: this alternative would only save the existing grocery store at 55th Street -- but not the current cooperative management or ownership structure -- and the store would wind up in the possession of whichever lender is foolhardy enough to loan the Co-Op more money. It does not allow the membership to retain control of the Co-Op during bankruptcy proceedings.
In this Chapter 11 debtor-in-possession arrangement, the new (post-bankruptcy petition) creditor will take precedence over pre-petition creditors and shareholders (the membership), and will be in the position to oversee operations of the 55th Street store.
As one Hyde Park resident, Mark Johnson, pointed out in the meeting, the creditors will have a lot of influence on the bankruptcy judge, not the Co-Op members. In this bankruptcy situation, the Co-Op will be answering to its newest creditor, not to its membership. So much for the democratic control that the Co-Op likes to stand for.
If the Co-Op pursues rehab and is not able to secure the considerable financing necessary, then the default would be bankruptcy and liquidation. In this case, the 55th Street store would be shut down, the court would appoint an independent party to liquidate all remaining assets and pay creditors in order of seniority.
This default situation would also likely make it very difficult for the 55th Street landlord, the University, to line up a new grocer on short notice, leaving the neighborhood potentially without any grocery store for longer than 14 days.
Note: the Co-Op has thus far not been able to secure financing for rehab. It must be in place by 12/17/2007, which is when the University is likely to file for foreclosure notice on the 55th Street store.
So, the clock is ticking. The National Cooperative Bank is willing to entertain the possibility of loaning the Co-Op $2 million, which would allow the Co-Op to enter Chapter 11, and will be voting on it Monday 11/19. But before anyone gets too excited, the NCB's loan is itself contingent upon Certified Grocers agreeing to a $1 million buyout of the 47th Street lease. As President Poueymirou pointed out, Certified has not in the past and is not currently willing to negotiate on this point.
In the earlier Keystone Co-Op posts, we had originally thought the board would endorse the rehab option. After the University entered the scene with its extremely generous debt workout offer, we then believed the board was likely to move in that direction. As it turns out, the board is split on these two approaches.
With the University's debt workout plan, the biggest uncertainty is which grocer would move into the 55th Street store space. However, I'm fairly confident that any new grocer would be an improvement on how the 55th Street store has been run over the last five years.
With the rehab option, on the other hand, there is more uncertainty and risk concerning the ultimate outcome. Going down that path could result in 1) a quick liquidation, 2) a long, slow death if the capital campaign fails or if GM Brandfon leaves, or 3) ownership by creditors even after emerging from bankruptcy if the Co-Op fails to pay off its creditors 100%. In this last scenario, the members would be left out in the cold, and their shares would still be worthless.
Interestingly enough, many members who commented in the meeting seemed willing to view the University as the great villain in this drama, but no one was nearly as critical about Certified, which in my view has been the biggest obstacle keeping the Co-Op from regaining any financial footing.
The University has cut the Co-Op plenty of slack, to the tune of 14 months of missing rent payments, while Certified has been quick to cut off food shipments as soon as the 47th Street rent payment is late. As President Poueymirou related, the Co-Op tried to stop its rent payment to Certified only last month, but Certified immediately cut off a food shipment.
As a result, the only reason the Co-Op has been able to continue to stock its shelves and stay in business is because it's stiffing the University on rent in order to keep up with its lease with Certified. In this case, the membership should be thanking the University.
Big kudos go to President Poueymirou, Treasurer Lowenthal, and Alderman Toni Preckwinkle for championing the debt workout plan -- the most realistic option that will bring a new grocer to the neighborhood in an orderly and efficient manner. While they are in a difficult position of having to advocate for the end of a Hyde Park institution, this is the most financially responsible choice for members.
On the other hand, Secretary Withrow and Director Stanek fueled hope and promoted the rehab option, without explicitly outlining the risks associated with that approach. In the vast majority of bankruptcy cases, the pre-petition shareholders -- such as shareholders -- are left with a big fat zero by the end of the reorg. Chances are very slim that members will get any value for their stock, or enjoy the right to participate in the management of the business.
That's because control over the Co-Op during the reorg will reside with the creditors, not the members. For all practical purposes, it will cease to be a cooperative. Rehab promoters ask members to invest more money in the capital campaign, while chances of ever realizing a return are extremely low. If you are inclined to make a pledge, I'd suggest you think of it as a donation.
Needless to say, this vote is very important and all Co-Op members should make sure their voice is heard on the options. Ballots will be mailed starting Wednesday 11/21. Having said that, the membership vote will only be taken into advisory by the board. In the end, the board is authorized to make the decision, and it may have to do so very quickly in those few days before 12/17.
46 comments:
In the end, the board is authorized to make the decision
That's not quite the end. Some admixture of sections 4.5 and 4.10 of the by-laws suggests that a binding membership vote could be forced.
Calling this improbable would be generous, but to my reading it's out there.
Who will it be? Treasure Island? Petes? Jerry? One-Stop? Potash Brothers? All of these are Certified members. One-Stop is the worst store in the world and the others are okay.
How discouraging.
I'm sure the University will move against the Co-Op -- sooner rather than later.
otto raises a good point about the Co-Op's by-laws. Article 4.5 of the by-laws states "The board of directors shall direct and be responsible for all business carried on by or for the Society. The board of directors shall in all of its actions be under the control and direction of any general or any special meeting of the members....The board of directors acts on behalf of the Society and is responsible to it for the loyal performance of its duties."
Two thoughts on this:
1.) The logistics of gathering membership consensus in a very short, say 3- or 4-day, window around 12/14 to make the final decision really boggles my brain. Keep in mind that the Co-Op has a lot of trouble even getting the Evergreen out to members because the membership database is so outdated. Arlene Rubin of Project Leap pointed out at Sunday's meeting that the ballots going out on Wednesday will be tallied and verified by hand -- a process that will take an estimated two days.
2.) If a majority of the membership actually supports the risky, fiscally irresponsible, and expensive approach of rehab in the face of such slim chances of the Co-Op's successful survival as a democratic entity, then this only underscores the consistent demonstration of managerial and strategic incompetence that has gotten the Co-Op into its current situation in the first place. It will be only the latest in a long-running series of bone-headed decisions that have run the Co-Op into the ground. At a certain point (which I think we passed five or six years ago), one must ask oneself whether it would be better to leave this grocery business to professionals, rather than in the hands of a bunch of amateurs.
Thanks for going to the meeting, Deep Throat. I absolutely couldn't be there, but I knew your reporting would be spot-on.
Was Mark Johnson's comment the only overt discussion in the meeting of the likelihood that the Co-Op would no longer be a membership-run institution if the bankruptcy option wins? After all, that's what die-hard Co-Op fans say they value the most about the place, so it would be incredibly remiss of the Board not to make it explicit.
Also, I have no experience with board ethics in circumstances like these, but don't boards generally indicate a unanimous endorsement, to help shareholders decide? Wasn't it irresponsible of them to present themselves as split?
To famac: One of the directors alluded to the University's plan to file for foreclosure of the 55th Street store on or around 12/17. I believe this is the University's strategy to put pressure on the Co-Op to decide sooner rather than later--it's not quite an exploding offer, but de facto, it will have the same effect. It also means the Co-Op only has the next 28 days to secure the $2 million loan it needs to go into rehab.
In addition to Mark Johnson, Alderman Toni Preckwinkle was the only other voice that explicitly addressed the bankruptcy implications for control of the Co-Op. As Mr. Johnson pointed out, he's seen a lot of Chapter 11s (reorgs) slip into Chapter 7 (liquidation). President Poueymirou danced around the control issue a little, but didn't really address it head-on.
My sense is that Secretary Withrow and Director Stanek soft-pedaled the risks, implications of, and probability of success for the rehab route. They made it sound like the Co-Op would enter bankruptcy, get a new loan to pay off the University, Certified, and other vendors, operate under Chapter 11 for a while to pay back that loan, and then emerge intact in a few years. They never explicitly explained what sort of probability they were putting on the Co-Op's ability to secure a new $2 million loan, or the probability that Certified would agree to a $1 million buyout of the 47th Street lease (one condition of the National Cooperative Bank's willingness to make that new loan), or the probability that the Co-Op would be able pay back that new loan in the time frame that Director Stanek laid out in his pro forma financials. Actually, he never shared the projected financial statements that he was using as a basis for the soundness of the bankruptcy route. I would certainly be interested in seeing his estimates.
While all of this is discouraging, I heard from an employee at the Hyde Park Produce Store yesterday that they plan to be in their new space by Christmas - which would be GREAT.
I was really looking forward to a good wake not the ridiculous show that was put on last night. One other major oversight from “Plan B” (from outer space) was that as soon as we would enter Bankruptcy we’d have to be on a ready cash basis for almost all of our vendors, including the one that would replace Certified as our main supplier. The errors of omission last night were really a disservice (although I'll irrationally blame the nefarious University for this to.)
I did like the fact that the “line” union acted as this was one large “surprise” while the meat cutters union came to announce that they’d have no statement at this time. I wonder if this further supports the idea that Treasure Island is the next in line for the 55th space since they just kicked out their “line” union in the summer and still have meat cutters represented by the same local as the Co-Op.
Michelle - That is fantastic news about the Hyde Park Produce expansion date.
It's worth reiterating that the bankruptcy option all depends on whether the Co-Op can get the loan they want in the next month. We'll know about the NCB loan sometime today. Financing has got to happen on short order and in the right sequence -- i.e., after the Board makes a decision based on the consultative membership vote, and before the University's deadline of 12/17.
If it doesn't,then things could move ahead very quickly in the opposite direction.
U of C should evict the Co-Op for non-payment of rent.
How can they mail out ballots if they don't know who their members are?
To Peter Rossi, Mary did ask about how the Co-Op will mail out ballots when they can't even get the Evergreen delivered to the right folks. Arlene Rubin of Project Leap said that members who had moved could provide their new addresses to Director Lisa Chin by showing proper ID. Additionally, for any members who have not received their mailed ballot within 2 weeks of 11/21, they can receive a replacement ballot at the membership desk in-store by showing proper ID. However, those replacement ballots will only be tallied after the mailed ballots are counted.
Note: No one addressed the issue of how accurate the current membership database is. Since the monkeys trashed the membership PC over the summer, I have little confidence that the Co-Op really does have good records of who is a member, who has shopped there in the last three years, who has moved, who has died, etc.
One member in the audience on Sunday mentioned that she's been at her current address since 1968, but somehow the Evergreen stopped coming to her, even though she hadn't moved.
As for the University moving to evict the Co-Op from 55th Street, I believe that's the direction it intends to move in by filing either "for closure" or "foreclosure" on or around 12/17/2007. The clock is ticking for the Co-Op to find a new $2 million loan.
We expect to hear some news today on whether the National Cooperative Bank will make that loan or not. At Sunday's meeting, a member asked if the bank's decision could be posted on the Co-Op's website, so members could know what was going on.
Rossi said: "How can they mail out ballots if they don't know who their members are?"
How can they call themselves a Cooperative when they don't know who their members are?
Nothing says an organization has ceased serving its shareholders better than losing owner records.
What is Secretary Withrow's first name?
There's a (still somewhat clueless) Trib story on the Co-op meeting here.
There is no hope for getting a real market at this point like Trader Joes?
Does anyone really want another off brand store with awful prices and weird merchandise?
SR, I think the Trib articles reflect the unfortunate extent to which Hyde Park has a reputation for narrow-minded anti-change-ism. The reporters, the City, the Park District...when they hear "Hyde Park Controversy" they just go into autopilot in their brains and focus on the nay-sayers.
Scott M keeps dropping believable circumstantial evidence that the new store will be a Treasure Island. If so, I hope it's a good one...the one I've been to up north is sort of meh. I agree with Jonathan; I've got a soft spot in my heart for Trader Joe's.
scottm is correct in saying "that as soon as we would enter Bankruptcy we’d have to be on a ready cash basis for almost all of our vendors, including the one that would replace Certified as our main supplier."
While doing business on a cash-basis with vendors isn't necessarily a requirement of bankruptcy, most vendors will demand to do so once they smell blood in the water. My impression, based on Director Stanek's comments at the Sunday meeting, is that the potential $2.4million loan would provide enough of a fresh infusion of cash to address those vendors, as well as provide payment for some of the Co-Op's other financial obligations. I'm guessing that his projections for cash flow going forward would provide enough liquidity to handle vendors that want cash-on-delivery. This is another reason I'd like to take a peek at his pro forma statements. It's hard to judge the reasonableness of Director Stanek's support for rehab without seeing the specifics of his estimates. Believe me, vendors and creditors will be looking very closely at those numbers (as well as coming up with a few of their own) to determine whether to extend any credit to the Co-Op.
President Poueymirou did clearly state that all of the Co-Op's pledgeable collateral had already been pledged twice over. The Co-Op has *no more* pledgeable collateral, and thus pursuing a commercial loan is not a viable option. This tenuous financial situation is exactly what could make it difficult for the Co-Op to secure a new $2.4 million loan from the National Cooperative Bank or any other lending entity. Further, I'd be very curious to see what sorts of strings any lender would attach to this type of loan.
There are some priceless comments on the new Trib story that directly refute the manager's claim that things have improved.
BUT WHO CARES!! The Co-OP has lost customers forever. They have not demonstrated that they can get them back. This is what they would need to do (at min) to get someone to loan them some money.
We are going to have a shuttered store in the nhood for sometime. This is why the U needs to evict them pronto.
I shutter to think what sort of utter nonsense will appear in the Herald on the "victorious" meeting of nay sayers and blind-folded fools.
At Sunday's meeting is the first time I've heard that paying 15% of the outstanding lease on 47th Street would be enough to get the Co-Op out of that contract. Up until now, the board had communicated that there was no escape from the lease with Certified, and that Certified had not shown any willingness to negotiate with the Co-Op.
So, did I hear wrong at the meeting? Is it true that paying Certified approximately $2.5 million (15% of the remaining 15.5 years of the lease, at $1.08 annually) will release the Co-Op from that contract? Has this item always been in the lease the Co-Op signed? Or, has Certified had a chance of heart and given the Co-Op a way out? Or, is this just conjecture about what Certified might demand of the Co-Op to be released from the lease? Would the Co-Op need to pay Certified this $2.5 million in a lump sum? If so, when? If anyone knows what this clause is based on, please share!
The internal politics of this unfolding drama are rich.
Board President Poueymirou is upstaged by the Board Secretary, who, after President Poueymirou has seeded the official Board position of shutting down the Co-Op in all the area newspapers, unloads his own faction's contrasting plan before the membership, making Poueymirou look like an ass for either 1) not knowing what was going on in his own organization, or 2) not being able to generate consensus beforehand, or 3) knowing but for some reason putting out a different line to the press.
Either give the appearance of confusion or serious disagreement at the top. We've seen this kind of confusion at the top before -- and it led to the lease on 47th Street.
At other times and places, this is the kind of machination that would get a subordinate minister/secretary put up against the wall and shot.
Too bad Poueymirou seems to be a man of principle, with the unenviable task of leading a reform that should end in a dissolution. But it's very hard to gain support for such a rational position among a vested interest group such as your own membership, which his rather dry presentation last night failed to do, leaving a vacuum for Withrow/Stanek to fill by appealing to the sentimentalists who are willing to not ask tough questions about financing and outcomes and believe in millenarian salvation.
So, if Poueymirou is having his Gorbachev moment (reform leading to downfall), Withrow is having his Napoleon moment -- in which a "Little Corporal" has the opportunity one day to become the Emperor of France if he plays his cards right.
Unless, on the other hand, this stand is his Waterloo.
Ah, Chicago Pop, your Three Stooges "rogue faction" illustration at the top of the Keystone Co-Op post #6 seems to have come true.
I think you're also (correctly) hinting at a parallel between this event and the Promontory Point community meeting of Oct. 2001, in which a rogue faction stood up to disagree with its own task force members, thus launching the activist career of...Jack Spicer.
The naughty side of me asks the question: who would win in a fight, Jack Spicer or James Withrow?
I don't know if there's enough room in the Hyde Park Antiquarian Society's building for life-sized statues to Jack Spicer AND James Withrow, but I do know this:
Withrow should be hoping that the banks say "no" to any loans, killing the Chapter 11 option. Then he loses nothing, and is a hero for trying.
If, on the other hand, they actually get money -- then he's gotta deliver and it's clear that will be a much harder road to glory.
I agree with Rossi - even if someone totally turned the Co-Op around and it was a wonderful store, it would still fail.
Why? No one cares!
Too many people have walked away and vowed never to return.
Grocery stores run on very thin margins, at least regular stores like Dominick’s and Jewel. No competitive grocer can survive a "win-them-back" campaign because the margins can't sustain the short-term losses, particularly for a stand alone grocer with no corporate resources.
famac, winning back lost customers is indeed one of the "ifs" built into the Winthrow/Stanek plan. It's a tall order.
And there are 5 more "ifs".
I don't understand why so many of you are enamored of Trader Joe's; it is also a weird store with funny offbrands--it only works if you also have a normal store to shop at.
The sun has set and the day is done. So, what's the news on the NCB loan? Director Stanek told the membership on Sunday that the NCB would be voting on the Co-Op's loan application on Monday 11/19/2007.
If anyone knows what this clause is based on, please share!
A calculation of 0.15 times 15.5 times 1.08 = $2.3 million dollars sounds an awful lot like a misconstrual of section 502(b)(6) of the Bankruptcy Code, unless something else is up.
Rest assured that IANAL.
Maybe it will be Moo and Oink. They are also Certified.
If we are going to be forced to continually shop for off brand products, I would much rather have Trader Joe style ones than the quasi-soviet/government quality products the coop seems to stock.
Seriously, at the COOP you have a choice for very high priced "normal" items or just awful quality alternatives for normal prices.
At least Hyde Park Produce will exist in the near term, granted I don't know if you will be able to buy Tide or Lucky Charms there either.
otto says: "A calculation of 0.15 times 15.5 times 1.08 = $2.3 million dollars sounds an awful lot like a misconstrual of section 502(b)(6) of the Bankruptcy Code, unless something else is up."
Since I'm not a lawyer either, I'm curious why you believe the Withrow/Stanek camp is misconstruing this section of the code. How have the bankruptcy courts typically ruled on this section?
Ron Barliant, of Goldberg Kohn, was at Sunday's meeting, but no one specifically asked him about this section of the code. His main comments were that the Co-Op must have considerable financing in place (i.e., the $2.4 million loan) for Plan B to be viable. If the Co-Op pursues Chapter 11, but isn't able to cobble together the financing, then the default would be liquidation.
Yes, you will be able to by basic grocery items at the new Hyde Park Produce store – as I understand it, there will be a full gourmet deli and cheese section with two isles of grocery items in addition to the current line up.
As for the COOP, I have from a very reliable source that the UofC already has a hand shake deal in place with Treasure Island. (YEAH!)
I'm as anxious as anyone else about the prospect of an alternative to the co-op, but I just don't understand comments like Jonathan's about the "quasi-soviet" product selection at the co-op. Isn't this a little hyperbolic? This weekend I shopped at Fox & Obel, Trader Joe's, and the Co-op. The leeks, truffle flour, kefir, San Pellegrino, soy milk, hummus, and bulk cashews I bought at the Co-op weren't exactly soviet. I know what he means, in terms of Certified-supplied stuff, but if you ignore those goods, many selections mirror stores like F&O. And it's cheaper.
Whatever happens, I just hope that we don't lose too much variety. And regarding the comments on TJ's weird/house brand stuff -- this is just private labeled stuff available under other brand names. You can buy TJ cereal, soy milk, hummus, cookies, naan, jam, etc at places like the Co-op already, albeit for 10-20% more.
The Nov. 20 Chicago Maroon has a good article about the Sunday meeting and the Co-op situation, quoting Hank Webber and President Zimmer. It's available on-line.
Thanks to Richard Gill for pointing out the very good Nov. 20 Maroon article on last Sunday's Co-Op community meeting.
Check it out.
Since I'm not a lawyer either, I'm curious why you believe the Withrow/Stanek camp is misconstruing this section of the code.
It looks as though it was I who was doing the misreading (of "not to exceed three years"). This section does still appear to be where the number comes from, at least.
I guess I'm just confused.
The University owns the Co-op retail space. Can the Co-Op stop an eviction by declaring itself insolvent? That seems kind of odd. You rent a place, don't pay -- and you can stay?
And I also thought a bankruptcy judge decided what the workout plan with Certified was - but these folks are already talking like its been negotiated.
And I think that's a little more than odd.
But what's most hilarious is how Withrow is talking about how there needs to be disclosure on what chain goes in there.
Since when does the general public have any say in what someone does with their property, particularly when it’s not a change-in-purpose?
The Co-Op's incompetent Board making demands about the replacement quality of a store they ran into the ground; Am I the only one that finds this horribly ironic???
"But what's most hilarious is how Withrow is talking about how there needs to be disclosure on what chain goes in there."
This struck me too. It's just a rhetorical move appealing to the negative sentiments against the University among die-hards. That's his play.
Withrow has no record of favoring disclosure prior to now. And the fact is, his faction's option (chapter 11) entails *just as much* if not *more* uncertainty and loss of control -- and will prolong it for years (while debt is paid off) instead of ripping off the band aid instantly.
The financial contortions that Withrow/Stanek faction are proposing are, sadly, representative of the *bankruptcy* -- pun intended -- of paleoliberal, communitarian thinking in the 21st century. When you lose money, you just borrow more, and promise in the future to be "more like a cooperative" which means less like a viable business.
To the earlier part of famac's question: as deep throat noted, how this happens all depends on the sequencing. The Co-Op has been advised by its lawyer that in order to avoid liquidation at the order of a bankruptcy judge, they must secure a loan sufficient to pay off the back rent owed to the U of C.
That was supposed to have been decided by now -- and may already have been. If the secure the loan, they can pay the U of C to go away, keeping the store. Same with Certified, according to a clause in bankruptcy law pertaining to broken leases.
If, on the other hand, the Co-Op cannot secure the financing, and goes ahead with chapter 11 (which they have said they will not), their assets would be liquidated. They know this.
The U of C has issued an ultimatum to make sure this process does not drag out any longer than it already has.
I've gotten weavels infestations twice from flour purchased at the Co-Op.
When I tried to get rid of them, they picketed my counter top.
Also see "Hyde Park Co-op Board Backs Plan..." in the on-line Crain's Daily News Alert, November 21, Crain's Chicago Business. It's at www.chicagobusiness.com.
This time, the Co-Op has 2,600 members.
From the above-linked Crain's article, Poueymirou: “My only regret is that the board did not take this up sooner so we could have more options."
So...a previous Board screwed up and expanded to 47th; subsequent Boards didn't do anything and therefore cut down the number of options available to the present board.
Sounds like a lot of Boards -- staffed by a lot of community members -- did a lot of screwing up.
Somehow, a for-profit business is ethically inferior to this amateurism?
Chicago Pop -
Thanks to your November 20 post, we now have a name for the Hyde Park Establishment's unstated - yet real - view of itself. Your term "paleoliberal, communitarian" nails it.
The sign above the gate: "Welcome to Hyde Park, an inwardly focused village practicing world denial and adhering to the true orthodox ideals of Paleoliberal Communitarianism."
I had been struggling to give it all a name. Now I can relax and enjoy Thanksgiving. Thank you.
from Crain's Chicago business article brought to our attention by Richard Gill:
Filing for Chapter 11 would be challenging, Mr. Poueymirou said, since the organization has no collateral to pledge for debtor-in-possession financing that would be required to keep the organization in business during a restructuring.
“At this stage, to continue the operations, (we would need) $2.6 million,” he said.
ahmen!!!
Any news on the financing front? All I can find on the coop website is this:
At this time, the Board has received a preliminary term sheet from the National Cooperative Bank; however final terms will require further negotiations and approvals. Success is not assured.
But I can't tell when this was written, or if the "preliminary term sheet" is anything new.
Nate, this is all we have heard, as well.
It is very likely that the Board is still scrambling to find financing. Which is a bit awkward, given the fact that the membership is still voting on whether the Co-Op should even bother.
Apparently there is an open Board meeting tonight, at which more information may be gained, for those who are interested.
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