Ruling Expected On Circle K Reorganization With BC-Circle K-Chronology
PHOENIX (AP) _ Three years after Circle K Corp.’s overambitious expansion plans landed it in bankruptcy court, the convenience store operator - minus much of its debt and 1,900 outlets - is close to completing its reorganization.
Circle K is proposing that some of its major creditors receive $399.5 million that an investment group has offered for the Phoenix-based company.
U.S. Bankruptcy Court Judge George B. Nielsen Jr. said last week he will issue a preliminary ruling Wednesday on whether he will accept the company’s reorganization plan or one proposed by a group of creditors.
Nielsen said a formal order will follow in about two weeks, which the CK Acquisitions investment group said would allow the sale to close by June 30.
CK Acquisitions, which is led by the New York holding company Investcorp International Inc., has interests in Saks Fifth Avenue, Tiffany & Co., and the Carvel ice cream chain among other U.S. investments.
CK Acquisitions has said if the sale is approved, it plans to leave in place the current management of Circle K, which has led the company since its May 15, 1990 bankruptcy filing.
Circle K had 4,500 stores - along debts of $1.3 billion and assets of $1.94 billion - at the time of the Chapter 11 filing. Since then, the company has closed or sold 1,900 outdated and marginally profitable stores.
Meanwhile, the company has launched a five-year, $300 million program to refurbish its 2,600 remaining stores, said Bart A. Brown, Circle K’s chairman and chief executive.
The program include changes - such as installing new soft-drink fountains and coffee bars and offering dairy promotions - aimed at broadening the chain’s customer base in an increasingly competitive industry, Brown said.
″The defined market for convenience stores has been the male, 18 to 35 or 40 years old,″ Brown said. ″That’s a declining share of the population. We’re going to have to broaden our appeal to other people.″
Circle K lost $773 million in its 1990 fiscal year, $307 million in fiscal 1991 and $197 million in fiscal 1992.
The company has yet to report results from fiscal 1993, which ended April 30, but Brown said there will be a net loss, ″principally because of the substantial costs connected with the bankruptcy.″
Meanwhile, Brown said he was optimistic that Nielsen would accept the company’s plan, which would give outright ownership to CK Acquisitions.
The plan has been endorsed by three creditor groups that would share in the $399.5 offered by CK Acquisitions. Banks and other lenders with claims totaling $370 million would get $210 million or about 57 cents on the dollar; senior secured noteholders with claims of $190 million would get $132.5 million; and vendors with claims totaling $175 million to $225 million would get $57 million.
The competing reorganization plan was filed by a fourth group, holders of Circle’s unsecured bonds with claims totaling $515 million who, along with the company’s shareholders, would get nothing under Circle K’s plan.
The bondholders’ mostly non-cash plan would give ownership of the company to various creditor groups, some of whom also would receive new, secured debt and $50 million in cash.
The company accumulated most of its debt in the course of a vigorous expansion during the 1970s and 1980s, much of the latter decade under the leadership of Karl Eller, who resigned as chief executive in May 1990.
The company, which started as a chain of three El Paso, Texas, grocery stores in 1951, opened its 500th store in fiscal 1971, its 1,000th five years later and reached 2,185 stores in December 1983.
But the heavy debt load incurred during the expansion binge forced the company into federal Bankruptcy Court after it failed to find a buyer.