December 17, 2020 – The Debtors filed their Third Amended Plan and related Disclosure Statement [Docket Nos. 427 and 428, respectively]. They separately filed a redline of each showing changes to the versions filed on December 15, 2020 [Docket Nos. 429 and 430, respectively].

Also on December 17, 2020, the Court issued an order approving (i) the adequacy of the Disclosure Statement, (ii) Plan solicitation and voting procedures and (iii) a timetable culminating in a January 21st confirmation hearing [Docket No. 434].

The only changes to the Third Amended Plan from the second amended version filed two days earlier deal with elimination of a sale bonus plan in favor of a severance plan.

The Third Amended Disclosure Statement explains, "In connection with the Sale Transaction, the Debtors’ Board of Directors is expected to approve that certain Kings Super Markets, Inc. Severance Pay Plan for Non-Union Employees (the 'Severance Plan'), which provides for payments to seventeen (17) employees in the Debtors’ corporate office who have not received employment offers from [asset purchaser] Acme (the 'Eligible Employees'). Three of the Eligible Employees are insiders and officers of the Debtors: the Debtors’ Chief Executive Officer, Chief Operations Officer and Chief Marketing Officer. The Severance Plan is generally applicable to all corporate employees of the Debtors who have not received employment offers from Acme, and the Eligible Employees constitute all corporate employees who have not received employment offers. The Debtors do not have any severance program that is generally applicable to all full time employees. 

The Severance Plan provides for payments to the Eligible Employees upon closing of the Sale Transaction (which is a condition precedent to the Effective Date of the Plan). The Eligible Employees are essential to the Debtors’ operations and the successful consummation of the Sale Transaction,. The Debtors anticipate that the disruption caused by the loss of any of the Eligible Employees could significantly delay consummation of the Sale Transaction and possibly jeopardize the Sale Transaction all together — resulting in additional administrative expenses. The Severance Plan provides for payment to the Eligible Employees equal to a minimum of four (4) weeks and a maximum of sixteen (16) weeks of base pay upon closing of the Sale Transaction (and consummation of the Plan), among other things.

The aggregate payments to be made pursuant to the Severance Plan are approximately $721,000 [down from $1.3mn under the Sale Bonus Plan], which the Prepetition Lenders and the DIP Lenders are anticipated to support. The highest paid Eligible Employee will not receive more than ten times the mean payment given to nonmanagement Eligible Employees pursuant to the Severance Plan. The calculation of the amount of payments under the Severance Plan conforms with section 503(c)(2) of the Bankruptcy Code. The Debtors will not make any severance payments other than those contemplated by the Severance Plan and have not made any severance payments to any management or nonmanagement employees in calendar year 2020. Confirmation of the Plan shall constitute Court approval of the Severance Plan and the payments made thereunder."

Plan Overview

The Third Amended Disclosure Statement [Docket No. 428] provides: “The Debtors intend to effectuate the Sale Transaction on or before the Effective Date, followed by the Wind-Down of any remaining affairs of the Debtors after the Effective Date….

The Debtors anticipate that, following Confirmation of the Plan, the Sale Transaction will close, the Acquired Assets will be transferred to Acme and Acme will pay the Sale Proceeds to the Debtors in accordance with the Sale Transaction Documentation. The Plan proposes that on the Effective Date, the Debtors shall fund the Effective Date Cash Amount (i.e., the Wind-Down Amount, the Professional Fee Reserve and the Administrative and Priority Claims Reserve) from the Debtors’ Cash on hand, the Sale Proceeds and any other liquid assets of the Debtors following the Sale Transaction (including any proceeds under the DIP Facility) (and, with respect to the Professional Fee Reserve, amounts in the Professional Fees Escrow Account pursuant to Article II.C.2 of the Plan). In the event that Excess Cash remains in the Administrative and Priority Claims Reserve, the Wind-Down Trust or the Professional Fee Reserve after payment of all Allowed Claims to be paid therefrom pursuant to the terms of the Plan, such Excess Cash shall be paid in Ratable Shares to the Holders of Allowed Class 3 Claims."

The Third Amended Disclosure Statement further notes, "Generally speaking, the Plan:

• (a) provides that Allowed Administrative Claims, Priority Tax Claims, Professional Fee Claims, Other Priority Claims and Other Secured Claims will be unimpaired;
• (b) provides that, except to the extent that a Holder of an Allowed DIP Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement and release of, and in exchange for each Allowed DIP Claim, on the Effective Date, each such Holder will receive Cash equal to the Allowed amount of such Claim;
• (c) provides that, except to the extent that a Holder of an Allowed Prepetition Secured Loan Claim agrees to less favorable treatment, in full and final satisfaction, compromise, settlement, and release of, and in exchange for each Allowed Prepetition Secured Loan Claim, on the Effective Date, each such Holder will receive an amount equal to its Ratable Share of the (i) Sale Proceeds remaining after deducting the Effective Date Cash Amount and payment of the DIP Claims and (ii) Excess Cash;
• (d) provides that all Holders of Allowed General Unsecured Claims, Prepetition Secured Loan Deficiency Claims, Intercompany Claims, Intercompany Interests, Section 510(b) Claims and Interests in Holdings will be cancelled, released and extinguished as of the Effective Date and will be of no further force or effect, and each Holder such Claim or Interest will not receive any distribution on account of such Claim or Interest; and
• (e) designates a Plan Administrator to (i) wind down the Debtors’ remaining businesses and affairs following consummation of the Sale Transaction; (ii) pay and reconcile Claims as provided in the Plan; and (iii) administer the Plan in an effective and efficient manner."

The following is an updated summary of classes, claims, voting rights and expected recoveries with no changes (defined terms are in the Plan and/or Disclosure Statement):

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The estimated recovery is 100%.
• Class 3 (“Prepetition Secured Loan Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $71.2mn and the estimated recovery is up to 100%. Each Holder of a Prepetition Secured Loan Claim shall receive an amount equal to its Ratable Share of the (i) Sale Proceeds remaining after deducting the Effective Date Cash Amount and payment of the DIP Claims and (ii) Excess Cash.
• Class 4 (“General Unsecured Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%
• Class 5 (“Prepetition Secured Loan Deficiency Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%.
• Class 6 (“Intercompany Claims”) is impaired deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%
• Class 7 (“Intercompany Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%
• Class 8 (“Section 510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%
• Class 9 (“Interests in Holdings”) is impaired, deemed to reject and not entitled to vote on the Plan. The estimated recovery is 0%

Asset Sale

On October 26, 2020, the Court approved a Sale transaction [Docket No. 307] that provides for the sale of the Debtors’ stores for a purchase price of $96.4 million in cash, plus the assumption of approximately $25 million in underfunded pension liabilities and certain additional liabilities.  The Sale Transaction also requires approval of the Federal Trade Commission. 

In connection with the Sale Transaction, the Debtors’ Board of Directors has approved a sale bonus plan (the “Sale Bonus Plan”), which provides for payments to certain employees likely to be terminated as a result of the Sale Transaction. Subject to Court approval, the Sale Bonus Plan provides for payments upon closing of the Sale Transaction to certain employees who are essential to the successful consummation of the Sale Transaction, equal to a minimum of four (4) weeks and a maximum of sixteen (16) weeks of base pay. The aggregate payments to be made pursuant to the Sale Bonus Plan is approximately $1.3 million, which the Prepetition Lenders and the DIP Lenders are anticipated to support. Certain insiders and executives of the Debtors are eligible for the Sale Bonus Program. Confirmation of the Plan shall constitute Court approval of the Sale Bonus Plan and the payments made thereunder.

Furthermore, to facilitate the successful and timely consummation of the Sale Transaction, the Plan provides for the assumption of certain Special Retention Bonus Award Agreements, dated as of December 18, 2019, with each of Stephen Corradini (Chief Merchandising Officer), Joseph Parisi (Chief Operating Officer), and Stephen Reynolds (Vice President – Finance, Controller), which provide an aggregate outstanding payment of approximately $141,321. These individuals are essential to the continued operations of the Debtors towards a successful and timely consummation of the Sale Transaction. Mr. Corradini, as Chief Merchandising Officer, is responsible for, among other things, the Debtors’ vendor relationships and marketing. Mr. Parisi, as Chief Operating Officer, is responsible for, among other things, the maintenance of the Debtors’ facilities. Mr. Reynolds, as Vice President – Finance and Controller, is responsible for, among other things, the Debtors’ accounting and financial systems. The Debtors anticipate that the disruption caused by the loss of any of these individuals would, at the very least, significantly delay consummation of the Sale Transaction—resulting in additional administrative expenses incurred by the Debtors’ estates.

The Debtors are continuing to market six of the eight stores that are not included in the Sale Transaction. The Debtors closed the remaining two stores in September 2020. After the Sale Transaction and any sale of any of the Debtors’ remaining six stores are consummated, any remaining assets of the Debtors will be liquidated pursuant to the Plan. The final disposition of the Debtors’ stores will determine whether and to what extent any pension plan withdrawal liability is triggered.

The asset purchase agreement (the “APA”) governing the terms of the sale is attached to the order as Exhibit 2.

On October 14th, the Debtors designated the Buyer as the successful bidder and stalking horse TLI Bedrock as the back-up bidder [Docket No. 266]. TLI Bedrock had paced bidding with a $75.0mn offer and is entitled to payment of a $2.63mn break-up fee and reimbursement expenses of up to $550k if the Debtors close on a sale to Acme or another party.

ACME is a division of Boise, Idaho based Albertsons Companies, Inc., (NYSE: ACI) which is the second-largest supermarket chain in North America and 32% owned by Cerberus Capital Management, L.P. As to the acquisition of the Debtors (which for the 2,300 store supermarket giant did not even trigger an 8-K filing requirement), the Buyer announced: “Upon the successful completion of the transaction, the stores will become part of the Mid-Atlantic division of Albertsons Companies, which operates ACME and Safeway stores on the east coast. The winning bid for the package and expected purchase price is $96.4 million.”

In an October 14th press release of their own, the Debtors stated: “Both Kings Food Markets and Balducci’s Food Lover’s Market will continue to serve their communities under their own banners through and after the closing of the sale.”

Key Dates

• Voting Deadline: January 12, 2021
• Objection to Confirmation: January 14, 2021
• Confirmation hearing: January 21, 2021

About the Debtors

KB US Holdings Inc. is the parent company of King Food Markets and Balducci’s Food Lover’s Market.  

Kings Food Markets. For more than eighty years Kings has been rated one of the finest food stores to serve New Jersey, Long Island and Connecticut. Long before the national trend led other grocers to “local” and “organic,” Kings understood that their clientele, located in many of the finest towns in America, cared about freshness, sustainability, quality and the provenance of their food. From the freshest produce and cheeses, to the finest meats, poultry and fish, the in-store experience is enhanced by Kings’ associates who pride themselves on customer service. Kings is based in Parsippany, N.J., with twenty-five stores serving the region. 

Balducci’s Food Lover’s Market. What began in 1916 as a small vegetable pushcart in the heart of New York City, Balducci’s became, over its 104-year history, America’s leading gourmet specialty food shop. Offering the finest foods – cheeses and meats, fish, fresh produce and grocery items from the exotic to the most luxurious, Balducci’s prides itself on presenting not just the best brands from every corner of the globe, but a gold standard private label too. Balducci’s has an executive chef cooking in every market with catering available as well. Balducci’s markets are located in New York, Connecticut, Maryland and Virginia.

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