Fairway Market dangerously close to a debt default
Debt-bloated Fairway Market is on a collision course with a debt default, a credit ratings agency said Wednesday.
The 80-year-old New York institution could default by April, Moody’s Investors Service said in a report.
With such a dire forecast, Moody’s downgraded the grocer on further into junk territory — its second downgrade since September.
Fairway warned investors in a regulatory filing on Feb. 5 that it could breach its loan agreements.
“We were looking for some stabilization or improvement in the operating performance and we haven’t seen that, which makes us believe that management’s turnaround has not worked,” said Moody’s analyst Mickey Chadha.
The 15-store supermarket chain has accrued $267 million in debt — and is struggling with declining sales. Revenue declined by 7 percent in the three months ended Dec. 27, to $191.6 million, from a year-earlier period.
Fairway admits to the problem, saying that its competitors are “more experienced at operating multiple store locations” and that it lacks the capital to invest in the kind of marketing it needs to get more customers in the door.
Potential suitors have begun to circle the company, according to a source familiar with the situation, but some have been turned off by the high rent on a number of Fairway’s leases.
Known for its fresh produce, prepared meals and cheeses, Fairway has lost its edge in quality and price to Whole Foods, Trader Joe’s and other newly minted New York rivals, said another industry source close to the company.
“Fairway was either comparable or cheaper in price,” said Chadha, “but now their competitors have lowered their prices and increased their promotional activity.”
The grocer is actively soliciting investors.
Despite the downgrade, Fairway stock had a good day Wednesday, rising 26 percent, to 39 cents.
“The market seems to anticipate that they will raise cash,” Chadha speculated.
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