Call Monday “Debt Relief Day.” Two troubled entities are getting debt relief payments. The first: Greece received $7.75 billion from the European Financial Stability Mechanism and promptly made payments to the European Central Bank and the International Monetary Fund. The second debtor is closer to home: the storied grocery chain Great Atlantic & Pacific Tea Company, or A&P, which received a $100 million loan as part of its bankruptcy filing.
Bankruptcies often start with these “debtor-in-possession financings,” says Peter Gilhuly, with the law firm Latham & Watkins. The money is meant to fund the company through the bankruptcy process.
“When you have your biggest trouble, you’re getting a lot of money to allow you to restructure, or in A&P’s case, to liquidate efficiently,” he says.
Like Greece’s latest proposed bailout, Gilhuly says this money is supposed to be a bridge, part of path forward guided by the U.S. bankruptcy code.
But because there isn’t a bankruptcy code for countries, Greece’s process is more unpredictable, says Lee Buchheit, a partner with Cleary Gottlieb Steen & Hamilton LLP.
“There is an institutional method by which claims against a corporate debtor can be extended or written down, and that’s binding on all creditors,” he says. For sovereign countries, negotiations are more “ad hoc.”
A&P has deals in place to sell 120 of its nearly 300 stores. It says it will continue its efforts to sell the rest.
The company has been on a slow decline since the 1950s, says Marc Levinson, author of “The Great A&P and the Struggle for Small Business America.”
“At its peak in the late 1920s, A&P became the first retailer anywhere to sell $1 billion worth of merchandise in a single year,” Levinson says. “It was truly a giant.”
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