Monday, December 10, 2007

Keystone Co-Op #8: The "New" Option B


posted by chicago pop with deep throat

Mastermind of Co-Op Plan for Commercial Loan


Say what you will about chain grocery stores, about "capital" and all the 1960s phobias that make Co-Op die-hards and Hyde Park isolationists shiver. What we're getting from the community of amateurs lately is no more reassuring.

It consists of a deep paranoia projected onto the University of Chicago when all the evidence makes clear that it is the Co-Op itself that is to blame for its current pickle; a laughable arrogance in the conviction that there are higher moral questions involved in this tale of banal mismanagement and play acting; and a revealing sense of entitlement to a continued existence at the expense of the University and other folks willing to keep the Co-Op on the dole.

The New Option B -- since the first one, the one members probably thought they were voting on, is moot, since that the National Cooperative Bank has rejected Chapter 11 financing -- is all about getting a regular commercial loan, with interest and terms, to help keep gas in the Co-Op's tank while the Co-Op gets its act together. This loan, which will only come on condition of an agreement with the University and Certified, has been seized upon by Co-Op savers as the "Third Way" out of the current crisis.

While we're not sure if there is such a thing as a third way out of a hole you've dug yourself into, we're quite sure that there are three questions that hover over the present strategy of Option B supporters now that a third attempt is being made to secure a commercial loan.

Can the Co-Op even secure a commercial loan? On what terms can it be secured? And can it be serviced in such a way as to do more than defer a resolution of the present crisis to a future point in time?

Rather than making an examination of any of these questions, the "Save the Co-Op" website highlights the very distant possibility of restoring some value to member shares, while glossing over the potential risks involved. The "lure" of Option A that is written off as part of a surreptitious, University-sponsored PR campaign is not that different from the "lure" of redeemed member shares here being proffered with next to no assessment of its real probability.

The risks not mentioned on the website include 1) the likelihood of meeting the conditions of a loan, meaning a payment plan agreed to with the University of Chicago on the Co-Op's back rent, and with Certified Grocers on its lease on 47th Street; and 2) the chances that the Co-Op will default on this loan, leading once again to supplier and liquidity troubles, and the threat of liquidation.

The Save the Co-Op website minimizes any downside to Option B because it counts on the University to provide a bailout in the event of the Co-Op's failure in servicing the new loan. In the bizarro-world of Co-Op Director Mueller, this expression of entitlement to financial rescue is "the more moral option."

Here's the key text outlining the preferred scenario from the Save the Co-Op website:

Option B passes but there is no way possible for the Co-Op to get a loan or go into reorganization. At this point the University will either go back to Option A or disgrace itself by allowing the Co-Op to go into liquidation. The idea that the University would allow the dismemberment of the store, the non-payment of merchants, the community with no place to shop, its mall without a keystone, residents heading north for all their shopping, etc. etc. is completely at variance with dozens of statements made by President Zimmer, Henry Webber and other University representatives for months and months. They would be doing what they claim the Co-Op has done -- but doing it with 100 times greater destructiveness.

Essentially, the Co-Op savers are playing a game of chicken with the University. The claim here is that the University is bluffing, that if the Co-Op membership and Board decided to go for Option B, now that debtor-in-possession financing is off the table, the University would in fact come to the Co-Op's rescue because they don't want a shuttered store in the neighborhood. This plan counts on the hegemonic University saving the Co-Op's insolvent but entitled arse.

Somehow or another, at the end of this queer passage, you get the sense that if the Co-Op goes down, it will somehow be the University's fault, rather than that series of friendly, neighborhood Co-Op Boards staffed by your friendly neighbors, the ones who ran this ship into the ground. In the absence of evidence to the contrary, this is what I see as the true fruit of the "democratic center of community involvement" advertised on the Save the Co-Op website.

Rather than stepping up and shutting down a failed business like responsible adults, the Co-Op Savers are acting like spoiled children -- eager to speed around in the family car knowing that if they crash it, Daddy will just buy them a new one.

It's one thing when amateurs botch up their own accounts. We don't have to live with that.

It's another thing entirely when amateurs botch up an enterprise that is supposed to serve the entire community, hold no accountability for the wildest schemes, and then make claims of moral superiority that would make Hugo Chavez cry.

23 comments:

SR said...

The idea that the University would allow the dismemberment of the store, the non-payment of merchants, the community with no place to shop, its mall without a keystone, residents heading north for all their shopping, etc. etc. is completely at variance with dozens of statements made by President Zimmer, Henry Webber and other University representatives for months and months.

Would the University have to do that if the Coop rejects Option A but still can’t get the commercial loan? I had been under the impression that the Coop can hobble along for a while just as it is so long as the University doesn’t demand the back rent and put it into bankruptcy.

What’s clear to me from the statements of U of C reps is that they really, really want the Coop replaced with a functioning grocery store sometime soon with minimal disruption to the community during the transition. They say they have two possible new stores lined up, and they’re able to make deals with either that would put them into the Coop space (sometime in February IIRC) after a two-week closing. If the Coop rejects Option A but can’t get the commercial loan and just does nothing, then presumably the U of C will time its rent demand to work with the deal it has already made with either grocery store. Given that the U of C is obviously already willing to just hand over huge chunks of cash already to make this happen, they’ll probably still do whatever they need to do to make it work. (Or is that impossible or much more difficult for the U of C to do if the Coop goes into liquidation rather going along with the planned bailout represented by Option A?)

The risk of Option B, commercial loan version, is that it puts the Coop at risk of going into involuntary bankruptcy pretty much whenever it runs out of steam. The commercial loan being conditioned on both U of C and Certified Grocers forgiving all of their outstanding debt, it becomes a question of whether they can stay afloat paying ALL of their bills while also servicing the new loan. Since we haven’t seen any numbers on what that payment will be yet, I’m not sure whether this could really work over the long term or not. But if it can’t, then what will happen if the loan payments turn out to be too onerous is that the Coop will just have to lock its doors someday at some unpredictable point in the future, and the U of C will have to scramble to put something together after the fact, which could indeed take months.

(If the pro-option B Board members think the community will blame the U of C for this outcome, after the U of C offered them such a sweet deal with a smooth transition for the community, they are on crack.)

Or am I misunderstanding something about how all this will work?

deep throat said...

The Co-Op diehards are eager to don the mantle of victim, and wholly unwilling to take responsibility for the consequences of its own bone-headed decisions.

According to their explanation of how the Co-Op now owes the University $1.2 million in back rent: "At this point, and probably well before this point, the Board should have sought Chapter 11 re-organization. Instead, they started paying the vendors and stopped paying the University. Debt to the University mounted. The University went along with it until it had the Co-Op completely by the neck and then announced that it would call in its debt on December 17, unless the Board accepted option A. What has been called the "generosity" of the University amounted to a trap."

Gee, did the University hold a gun to the board's collective head and force the Co-Op to withold rent payments?!! It seems to me that the University could have been about as skin-flinty as Certified has been and demanded payment of rent starting back a year ago, and then evicted the Co-Op when it couldn't pay.

President Poueymirou pointed out at the 11/18 Town Hall meeting that the ONLY reason the Co-Op has been able to keep its sorry-ass 55th Street store in operation for the last year is because of the University's flexibility on non-payment of rent.

If that was a trap, I'd say the Co-Op willingly walked into it with its eyes wide open. The Co-Op INITIATED ITS CHOICE to pay its vendors over its landlord. Non-payment of rent wasn't something the University suggested to the Co-Op. No, the Co-Op came up with that strategy on its own, and now the diehards are crying because it didn't work.

If that was a trap, does that also make all the groceries the diehards have bought from the Co-Op and eaten in the last 12 months a big trap? It's time for the diehards to grow up and hold themselves and their boards accountable for their decisions.

deep throat said...

I'm really puzzled about why aren't the diehards taking Certified to task? Certified is the party that hasn't budged on the 25-year, no-escape-clause lease at 47th Street. Certified is the party that immediately halted food shipments when payment was stopped or delayed. Certified is the party that has had it's foot on the Co-Op's neck the last five years.

How come the lease wasn't a "trap" by Certified? How come Certified's leverage as the Co-Op's primary distributor wasn't a "trap"?

It seems pretty clear to me that the diehards are applying a double standard to their evaluation of the University and Certified.

deep throat said...

sr's comment: If the pro-option B Board members think the community will blame the U of C for this outcome, after the U of C offered them such a sweet deal with a smooth transition for the community, they are on crack.

sr, I don't know about the rest of the community, but I think the Co-Op diehards are definitely already on crack. They've managed to blame the University for ALLOWING the Co-Op to owe $1.2 million in back rent, even though the non-payment was initiated by the Co-Op in the first place.

Of course, if the University were actually demanding payment of back rent (as any normal landlord would reasonably do after a year), then they would also blame the big, bad University for shaking down the Co-Op like Tony Soprano's gang of thugs did on a regular basis.

The whiney-baby act is wearing thin, in my view.

bornatreese said...

The coop story really has wings. On a nationwide website normally devoted to discussions of the merits of different colleges and how to get in, etc., some posters have gone off on a tangent about the coop. The link is http://talk.collegeconfidential.com/university-chicago/427742-changes-hyde-park.html

Elizabeth Fama said...

I sort of feel bad for the U of C rep who is dealing with Treasure Island and Dominick's; imagine how embarrassing it is to try to soothe them, and continue to stoke their interest, while explaining the bone-headedness of the board, and of a small faction of kooky Hyde Parkers, who just won't let the Co-Op die in a dignified way.

I've said it before and I'll say it again, I think the "Save the Point" fiasco (a) gave Hyde Parkers a sorry reputation for being unable to compromise, and (b) created a "kamikaze-on-behalf-of-the-community" ethic among radical activists in Hyde Park.

Christopher said...

As a Hyde Park native who has lived outside Chicago for decades, I am following the demise of the Coop with a mixture of sadness and realization that businesses (even non-business cooperatives) fail and die.

There is an almost Götterdämmerung effect as we watch the die hards holding on to their cooperative in the face of fiscal reality. There are now $60,000+ in pledges but those are promises not hard cash. The vote not the pledges will show how strong Witherow and his Plan B faction is.

If Plan A passes, what effectively can stop the majority of the board from implementing it? As the elected board with the legal and fiduciary responsibility (I hope they have Officers & Directors and errors and omission insurance), what can stop them from acting as a board and ending the Coop's existence? The opponents have claimed the vote is non-binding and illegal. By that logic even if plan B passes the Board could still pull the plug.

Of course in any case, the University will be blamed by some. It always is.

I suspect that Plan A will pass simply because most Coop members joined to save money not to make a political statement. That sure was the case in farm cooperatives I was involved in.

The Hyde Park Coop is bankrupt and realistically has an infinitesimal chance of survival. If the Board exercises it fiduciary responsibility, it should take the handout from the University that pays of the creditors and ensures a continuing grocery in the neighborhood.

My final prediction is that you will see a Treasure Island move in to 55th Street. Certified can make concessions to the University and get a member grocery - Treasure Island. The can stick to their full price on the 47th Street lease and get not ongoing revenue from 55th St.

Famac said...

Let's not get too worried here. Maybe I'm dillusional, but I think the vote is going to make it very very clear that the Co-Op's time is up.

In many ways, the harder these folks campaign, the worse they make their cause.

Its one thing to champion keeping a park "true to its style" but another to try to save an expensive store that no one shops at. People vote with their feet, and the Co-Op has already lost by a landslide.

I think the real thing to focus on is how the voting results will be corrupted or spun in such a way as to prolong the transition.

Richard Gill said...

What's scarier - (1) that the "Save the Co-op" bunch might actually believe the stuff they're putting out, or (2) that they might simply do anything, say anything in their hour of desperation? If the former, they might consider adopting as their theme song "They're Coming To Take Me Away Ha-Haaa," by Napoleon XIV. If the latter, then the Hugo Chavez analogy seems fitting.

ScottM said...

Really if the UofC was smart about this it wouldn't be a "close the Co-Op" approach, but it would be to help "Right Size" the Co-Op.

Since the UofC is tossing around fairly large sums to do the incredible thing of paying off another entities creditors, why don't they provide a little more rope for the noose. Offer the Co-Op a small storefront/meeting space and a matching grant for the actual $ raised from pledges.

If the members really want to keep the Co-Op alive versus keeping that Status Quo they should really chase this type of opportunity to rebuild and it would probably reduce the "hit" the UofC is taking.

Frankly, I'm sure this “Phoenix-like” entity would collapse into flames without the benefit of regeneration but at least the Co-Op supporters would be the proverbial holders of the rope rather than the UofC.

As an aside, I think that most of the truly interested newer members in the Co-Op (which I mean to be members for less than 30years) see the Co-Op through the rose colored glasses of a prior “good” coop such as the ones in Austin (where JW is from), Berkeley, Park Slope, MN, etc.. Those Co-Ops were good places to find fresh, local and organic products without the sometimes truly high markups of a Whole Foods (although it certainly has become a weekly destination for my family (& the refillable detergent/liquid soap station a fun for all entertainment destination.))

Elizabeth Fama said...

famac: it's off-topic, so I won't pursue it here, but it's a misperception (that I wish people wouldn't promote) that the Save-the-Point folks just wanted to "keep a park true to its style." The points of view were much more convoluted than that, and there was a similarity to this Co-Op case in that they were willing to turn down 20 million dollars of funds on our behalf for improvements in which the City and Park District were actually willing to let the community have a say. OK, more on that in January, in my Promontory Point posts.

Famac said...

I know, but most people think that's what they are supporting.

Mark said...

I sort of agree with the commenter that my alma mater should be doing a "right-size the Co-Op" thing. Why not pay off Certified and help the Co-Op keep running? The wrong size is two Co-Op stores within a mile with one of them vacant.

I suspect none of you ever lived on the North Side and ever had to deal with Treasure Island. It is awful.

And a boutique Dominick's with their high prices is not going to work here.

Famac said...

I don't think the question is prices as much as quality. Hyde Parkers have already become accustomed to Whole Foods prices, its the rotten produce and stinking meat counter the dicontented find objectionable.

Most of the people on this blog are more than familiar with all of the North Side grocers, I assure you.

LPB said...

scottm and mark have raised a really interesting question: just what is the "right size" for the Co-Op?

scottm's suggestion of the University throwing matching funds and a small storefront to the Co-Op suggests that the Co-Op would de facto become a niche food outlet, while a different grocer would move into the 55th Street store to become the neighborhood's primary supermarket. (Apologies if I'm misreading into your comment.)

This would actually be consistent with many of the more successful co-ops in different towns/cities, which do indeed operate as niche players.

I did live on the north side for 18 years, and found that Treasure Island was, on the whole, better than the Co-Op in terms of selection, freshness, and merchandising. I continue to make weekly trips to the north side to buy groceries and household goods.

Shane said...

Mark, I'm not sure you understood Scottm, or maybe I didn't.

I don't think he was saying the university should bail out the co-op, I think he was saying to have a real grocery store come in and replace the co-op but leave the co-op some tiny storefront somewhere to serve whatever die hards want to visit.

I think that is a good idea actually. Cut the feet out from under the "save the co-op" movement because it will still exist for those who want it, just in a much smaller form.

It is hard to argue against the fact that the co-op has benefited from its status as a Hyde Park monopoly. Lets see what would happen if it still existed along side a real grocery store. Then when the co-op died for good it would be through good old fashioned capitolistic competition and nobody could cry foul at the university.

Richard Gill said...

I disagree with the suggestion that the University should help to bankroll a smaller Co-op. That would be a direct handout (subsidy) to the Co-op. Why should the University unfairly subsidize a store to compete with the small independent grocers who are already struggling to serve Hyde Park? Doing so would tell potential new retailers that things haven't really changed around here.

If anyone wants to start a new Co-op, let them do it with their own money.

chicago pop said...

If anyone wants to start a new Co-op, let them do it with their own money.

amen.

The University doesn't need to "size" anything right. The Co-Op needs to size itself right.

Famac said...

Forgiving 1.2 million is back rent sounds like enough of a gift already.

ScottM said...

I'd be more than willing to bet that the UofC is bankrolling some of the buildout of Hyde Park Produce @ the former Mr. G's and other than that and Village I'm not sure the others would qualify as not much beyond bodega status. Additionally, its already been stated that the UofC is throwing $1M+ in incentives to bring in either Treasure Island or Dominic's.

Really the suggestion was to state that the UofC misread then mishandled the agreement to "go away" with the Co-Op. If they would have provided any possible out they could have passed any "blame" either back at the Co-Op or even towards Certified.

The UofC failed the basic public relations test of promoting its goodwill that it should have built with its largess towards the Co-Op, however undeserved the Co-Op may be.

bornatreese said...

Why is it that whenever I look at the Coop website the quote of the day is always from a member who supports prop B?

Richard Gill said...

bornatreese - Why are the quick quirky quintessentially quacky quotable quotes of the day on the Co-op website from only "Option B People"? Maybe everybody else thinks it's a crock, so why bother. On the Co-op website, take a look at the on-line December calendar. It shows the next Co-op Board meeting is scheduled for 6pm Christmas Eve. Who knows?-- Maybe they mean it.

Note that the calendar does show 6pm Monday December 17 as the date/time for announcement of the election results. That date/time may be correct.

Elizabeth Fama said...

Richard Gill, the vote is in and posted on the Co-Op web site as of the wee hours of this morning (Sat. 15th).