December 23, 2020 − The Court overseeing Lucky's Market Parent's cases issued an order confirming the Debtors' Second Amended Plan of Liquidation [Docket No. 1423].

On January 27, 2020, Lucky's Market Parent Company, LLC and 21 affiliated Debtors (“Lucky's Market” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the District of Delaware, lead case number 20-10166. At filing, the Debtors, operators of 39 organic grocery stores, noted estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $500.0mn and $1.0bn. The Debtors further disclose that as at the Petition date "assets consisted of approximately $425.0mn on an aggregate basis [and] aggregate liabilities as of the Petition Date are approximately $600.0mn."

On December 22, 2020, the Debtors Filed a Second Amended Plan of Liquidation and further filed a blackline showing changes to the version filed on November 24, 2020 [Docket Nos. 1397 and 1398, respectively.

Plan Overview

The Debtors' memorandum of law in support of plan confirmation [Docket No. 1403] states, "The Plan is a liquidating chapter 11 plan. Most of the Debtors’ assets have been sold to third party buyers through approved lease and asset sales. As described more fully in the Plan and the Disclosure Statement, following the successful marketing and liquidation of the Debtors’ store lease portfolio, as well as substantial, good faith, arm’s length negotiations among the Debtors, the Committee and the Prepetition Secured Lender (the 'Parties') negotiated the Global Settlement. The Plan embodies a Global Settlement, as discussed more fully within the Disclosure Statement and Plan, which provides the only potential recovery for general unsecured creditors in these Chapter 11 Cases (as defined below). No party has filed substantive objections to confirmation." 

The Disclosure Statement provides [Docket No. 1261]: "The Plan and Disclosure Statement reflect substantial arms’ length settlement negotiations among the Debtors, the Prepetition Secured Lender, and Official Committee of Unsecured Creditors (the “Committee”), and the EB-5 Investors, which culminated in the Global Settlement. The Special Committee has approved the Plan and believes the Plan is in the best interests of the Debtors’ Estates."

The following is summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the Liquidation Analysis below):

• Class 1 (“Prepetition Secured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $306,453,923.00 and the estimated recovery is 0%. On the Effective Date, any Remaining Asset shall be transferred to the Prepetition Secured Lender on account of its Allowed Prepetition Secured Claims; provided, however, that the Prepetition Secured Lender in its sole and absolute discretion, may elect not to have such Remaining Asset transferred to it and instead, elect to have the Liquidating Debtor administer such Remaining Asset with any such proceeds thereof being paid promptly to the Prepetition Secured Lender pursuant to the terms of the Settlement; provided, further, that any Remaining Asset administered by the Liquidating Debtor and not previously disposed of shall be transferred to a Liquidating Trust in accordance with Article IX of the Plan, and the Holder shall receive a Liquidating Trust Interest entitling it to continuing distributions consistent with the foregoing.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $100,000.00 and the estimated recovery is 100%.
• Class 3 (“Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $100,000.00 and the estimated recovery is 100%.
• Class 4 (“General Unsecured Claims Class A”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $39,800,000.00 and the estimated recovery is 8%-17%. Each such Holder shall receive such Holder’s Pro Rata Share of the General Unsecured Claims Class A Recovery Pool Allocation, as full and complete satisfaction of the Claims against the Estates and Liquidating Debtor; provided, however, if and to the extent any Holder has not received its full distribution prior to the transfer of the General Unsecured Claims Class A Recovery Pool to a Liquidating Trust in accordance with Article IX of the Plan, such Holder shall receive a Liquidating Trust Interest entitling it to continuing distributions consistent with the foregoing.
• Class 5 (“General Unsecured Claims Class B”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $38,500,000.00 and the estimated recovery is 3%-6%. Each Holder of an Allowed General Unsecured Class B Claim shall receive such Holder’s Pro Rata Share of the General Unsecured Claims Class B Recovery Pool Allocation, as full and complete satisfaction of the Claims against the Estates and the Liquidating Debtor. For the avoidance of doubt, nothing herein shall affect or impair the rights, benefits, and obligations under any guaranty in favor of such Holder by any non-Debtor, including without limitation Kroger; provided, however, if and to the extent any Holder has not received its full distribution prior to the transfer of the General Unsecured Claims Class B Recovery Pool to a Liquidating Trust in accordance with Article IX of the Plan, such Holder shall receive a Liquidating Trust Interest entitling it to continuing distributions consistent with the foregoing.
• Class 6 (“General Unsecured Claims Class C”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $4,836,648.00 and the estimated recovery is 0%. The Prepetition Secured Lender shall receive on account of its Prepetition Secured Lender Deficiency Claim the General Unsecured Claims Class C Recovery Pool Allocation; provided, however, if and to the extent any Holder has not received its full distribution prior to the transfer of the General Unsecured Claims Class C Recovery Pool to a Liquidating Trust in accordance with Article IX of the Plan, such Holder shall receive a Liquidating Trust Interest entitling it to continuing distributions consistent with the foregoing
• Class 7 (“Intercompany Claims”) is impaired, deemed to reject and entitled to vote on the Plan. The aggregate amount of claims is $479,000,000.00 and the estimated recovery is 0%. 
• Class 8 (“Equity Interests”) is impaired, deemed to reject and entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%.
• Class 9 (“EB-5 Investors”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is N/A and the estimated recovery is 0%. Holders of Class 9 Interests shall not receive any distribution of Cash or other consideration under the Plan. The Debtors’ rights under the EB-5 Guarantees shall be transferred and assigned to the holder of Class 1 Prepetition Secured Claims or another Debtor prior to any distribution to the EB-5 Investors. The transfer of the equity interests in the EB-5 Designated Entity shall be in full and complete satisfaction of any and all claims the EB-5 Investors may have against the Estates, the Liquidating Debtor, and Kroger and the EB-5 Investors shall be Releasing Parties.

Voting Results

On December 22, 2020, the Debtors’ claims agent notified the Court of the Plan voting results [Docket No. 1406], which were as follows.

• Class 4 (“General Unsecured Claims Class A”): 120 claim holders, representing $18,222,386.05  (99.83%) in amount and 97.56% in number, voted in favor of the Plan. 3 claims holders, representing $30,603.74 (0.17%) in amount and 2.44% in number, rejected the Plan. 
• Class 4 (“General Unsecured Claims Class B”): 5 claim holders, representing $31,575,158.97 (94.72%) in amount and 83.33% in number, voted in favor of the Plan. 1 claim holder, representing $1,760,383.28 (5.28%) in amount and 16.67% in number, rejected the Plan.
• Class 9 (“EB-5 Investors Claims”): 17 claim holders, representing $6,000,000.00 (100%) in amount and 100% in number, voted in favor of the Plan.

Asset Sales and Store Closings

The Disclosure Statement provides: “Prior to and since the commencement of the Chapter 11 Cases, the Debtors have been engaged in a marketing process to monetize substantially all of their assets. Through their professionals, including PJ Solomon, Great American, and CBRE, the Debtors’ marketing efforts resulted in an increase of the value of their Estates by at least $50,383,272…. As [additionally] the Debtors conducted ‘going out of business,’ ‘store closing,’ ‘everything must go,’ or similarly themed sales or dispositions of the Debtors’ assets and inventory at thirty-three (33) Stores….the Debtors and Great American [also] sold certain of the Debtors’ FF&E at twenty-one (21) Stores. In total, the Debtors’ increased the value of their Estates through these sales by approximately $23,113,272."

The Disclosure Statement attached the following exhibits:

• Exhibit A: Debtors’ Chapter 11 Plan of Liquidation 
• Exhibit B: Disclosure Statement Order (and all attachments thereto) 
• Exhibit C: Liquidation Analysis

On December 11, 2020, the Debtors filed their Plan Supplement [Docket No. 1349], which attached the following:

• Exhibit A: Liquidating Trust Agreement
• Exhibit B: List of Executory Contracts and Leases to be Assumed
• Exhibit C: Claims Reserve

On December 22, 2020, the Debtors filed their Second Plan Supplement [Docket No. 1396], which attached the following:

• Exhibit A: Revised Liquidating Trust Agreement
• Exhibit B: Revised Claims Reserve
• Exhibit C: Blackline comparison of the revised Liquidating Trust Agreement against the version filed with the Court on December 11, 2020

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Declaration“), Andrew T. Pillari, the Debtors’ Chief Financial Officer, detailed the events leading to Lucky’s Market’s Chapter 11 filing. The Declaration states: “Beginning in 2015, the Company developed and sought to execute on a strategic growth plan, which included accelerated growth in new and existing markets, with a focus on developing stores in Florida. 

The Company’s strategic growth plan required, among other things, significant upfront investment…. The Company expanded in Florida in 2016 and had eleven stores in the state by the end of 2017. As a result of the expansion, between fiscal year end 2016 and 2017, the Company’s sales grew. However, the Company’s expansion in Florida coincided with, among other things, increased competition in the grocery industry, including expansions from competing chains such as Sprouts Farmers Market, Fresh Thyme Farmers Market and Earth Fare. As a result, notwithstanding the growth in sales, the portfolio of Company stores was unable to achieve sustainable four-wall profitability. 

Most recently, fiscal year-to-date through January 4, 2020, the Company had approximately $22 million of store operating losses and approximately $100 million net loss. Additionally, fiscal year-to-date through the week ended January 18, 2020, the Company had a 10.6% reduction in comparable store sales versus the prior year-to-date period. 

Based on performance of the Company’s business, the Company’s management determined that it would require approximately $100 million in incremental funding to continue operations until the Company would be cash flow positive. Management determined that it would be unable to secure new sources of sufficient funding outside of these chapter 11 cases.”

Although the Declaration makes no specific reference to the December 2019 decision of the The Kroger Co. (“Kroger’s”) to divest its interest in the Debtors, or perhaps more importantly as a driver of the Florida expansion, that clearly was an important factor. Kroger’s, which still holds a 55% equity stake in the Debtors, invested in the Debtors’ business in 2016 and oversaw the Florida expansion which saw the Debtors expand from 17 stores at the time of the Kroger’s investment to 39 stores. In its December announcement, Kroger’s said it would take a $238.0mn charge on its investment.

Liquidation Analysis (see Exhibit C of Disclosure Statement [Docket No. 1261] for notes)

About the Debtors

The Debtors' business focuses on affordable organic and locally-grown fruits and vegetables, top-quality, naturally raised meats and seafood, and fresh, daily prepared foods. The Company’s emphasis is on carrying the highest-quality products at the lowest prices, with the mission of providing “Organic for the 99%”. The Company’s stores offer a broad range of grocery items through the Company’s “L” private label at great value that have no artificial colors, flavors or preservatives. Ten percent of profits from the Company’s private label are reinvested in the communities it serves.

The Company leases 37 of its 39 stores. The two owned stores are located in Florida, one in Oakland Park and the other in Panama City. The Company has approximately 3,100 employees, all of which are non-union.

As of the Petition Date, the Debtors had approximately $15 million of cash and cash equivalents and their assets consisted of approximately $425.0mn on an aggregate basis. The Debtors’ aggregate liabilities as of the Petition Date are approximately $600.0mn.

Corporate Structure Chart

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