BI-LO announced today they will file for Chapter 11 bankruptcy. The Mauldin-based company has 215 stores located in South Carolina, North Carolina, Georgia, and Tennessee and expects all stores to remain open. Chapter 11 bankruptcy allows the company to restructure its business without losing control over the company. It is filed when the business can no longer pay its debtors. The idea of Chapter 11 is to work with the court and the debtors to create a plan that will assist in getting the business out of debt and also allows the business to acquire loans on favorable terms with the new lender receiving priority on business earnings. BI-LO does not plan to borrow money however. Instead, it intends to fund its current operations with cash on hand and cash generated through future earnings. Furman professor of finance, Tom Smythe, says by filing for Chapter 11 now, they are protecting their business in the long term. “The good things is they’re going into this, they’re saying, ‘Look, we’re trying to protect the business and not get it into a long term bond because of the current credit crisis,'” said Smythe.
“So, what they’re trying to do is protect the long term business model in the short term. If they went out and took on debt that was unfavorable, they would have to keep that debt for whatever the maturity is, let’s say, five or ten years.”
Smythe also said that under-performing stores may be closed in the future to protect earnings.
Furman professor of finance, Tom Smythe, says because several loans are maturing, BI-LO didn’t feel they could pay the interest rates. The company is being pro-active by reorganizing now, according to Smythe. “In large part because of the credit crisis, and by favorable terms, what we’re really saying is that interest rate would be such a burden that the cash flow that they’re generating wouldn’t be enough to cover that debt.
“They’ve decided to go into reorg(anization) Chapter 11 at this time to try and manage that process in a smoother fashion.”