We were tempted to just leave it alone at “yes,” but we’ll at least add what Moody’s had to say:
"Despite the lower debt burden following the company's emergence from bankruptcy in 2016, we believe Fairway's capital structure is unsustainable given weaker than anticipated operating performance and upcoming debt maturities," stated Moody's Vice President and lead analyst for the company, Mickey Chadha. "Fairway is facing an extremely promotional business environment, and with competitive openings in its markets expected to continue, the ability to improve profitability at a level sufficient to support the current capital structure looks highly suspect, rendering a further debt restructuring highly likely in our estimation over the next 12-18 months," added Chadha.
The ratings reflect elevated risk of another requisite debt restructuring or distressed exchange given Fairway's deemed untenable capital structure, evidenced in part by very weak credit metrics, weak and eroding liquidity, and upcoming debt maturities including a $25 million LC facility that matures October 2018 and more than $100 million (including PIK interest) of senior secured term loans that mature in January 2020. Moody's estimates lease adjusted debt-to-EBITDA in excess of 10 times, and EBIT-to-interest of less than 1.0 time over the next twelve months.
Remember: this company already shed $140mm of secured debt and $8mm in annual interest expense in the last bankruptcy a mere two years ago. In the company’s Disclosure Statement, company counsel Weil Gotshal & Manges LLP wrote:
Upon emergence from bankruptcy, all borrowings under the DIP Term Loan will be converted into an exit facility on a first out basis leaving an estimated $42 million of cash and cash equivalents on Fairway’s balance sheet that will allow it to maintain its operations and satisfy its obligations in the ordinary course of business and position Fairway for long term success.
Not to get ahead of ourselves here as Moody’s can surely be wrong. But, are we crazy or has the definition of “long term success” dramatically changed?
Which begs an interesting series of questions. First, at what point do professionals who have multiple chapter 22s attached to their names start to feel the affect of that in the marketplace? At what point do they get credibility checked on plan feasibility by judges at the confirmation hearing? “Mr. Lawyer ABC and Mr. Restructuring Advisor XYZ. Could you please explain why I should believe a thing you say about feasibility given that your last [insert applicable number here] grocery restructurings have all ended up back in bankruptcy court within short order? Have you properly guided your client to a truly ‘feasible long term success’ trajectory? Or are you really just succumbing to the wishes of stakeholders at the other side of the table (cough, GSO) whose business you hope to obtain in the future?
To be fair, we suppose if you service a monopoly of cases is a given sector and that sector is going to hell in a hand basket the way the grocery space is the likelihood of repeat bankruptcies goes up. Still, you’d think management teams (and/or the sponsors) would start to question the value of “quals” when those quals all ultimately result in an expensive round-trip ticket back to bankruptcy court.