Alon Blue subsidiary Mega Retail files arrangement of debts request

By Caroline Salls

Pittsburgh, June 29 – Alon Blue Square Israel Ltd. subsidiary Mega Retail filed a voluntary request with the District Court in Lod, Israel, for an arrangement of debts under Section 350 of the Israel Companies Law, according to an Alon Blue news release.

Alon Blue said the filing includes a request by Mega Retail to schedule meetings of financial debtors, suppliers, service providers and lessors to submit a plan of recovery and arrangement for their approval.

The filing is intended to be a first step in restructuring Mega Retail’s debt obligations and to improve its liquidity.

Mega Retail requested court approval to continue payments to suppliers and service outstanding debts during the interim period of July and August.

Alon Blue said the debts will be paid in four installments. The payments would be made as long as the relevant suppliers and service providers continue to supply or provide services to Mega Retail in amounts needed and on the same terms as in effect before the court filing.

The company is also seeking court approval to make monthly lease and management fee payments, to cancel the lease for its logistic center in Kibbutz Eyal, effective Oct. 1, to prohibit third parties from foreclosing on personal and/or bank guarantees and/or indemnification letters and to secure its debts to enable formulation of an arrangement and prevent independent steps by creditors who can undermine the arrangement.

Alon Blue said Mega Retail would not make principal and interest payments to bank lenders during July and August under the motions filed with the court.

The company also asked the court to instruct all necessary suppliers to continue to supply their services or products to Mega Retail during the interim period in exchange for terms of payment and supply terms that were in effect before the court filing and to instruct all banks not to reduce their lines of credit during the interim period and not offset any funds of Mega Retail and Alon Blue in the bank’s possession in order to repay amounts owed by Mega.

Debt arrangement details

Alon Blue said the proposed debt arrangement contains the following elements:

• Deferral of payment of all principal to bank lenders for three years from the date of approval of arrangement, extension of the principal repayment period to seven years following expiration of the deferral period with 8.5% of principal payable annually and a balance of 40% payable in the eighth year, and interest on all loans at an annual rate of 3.5% linked to changes in the consumer price index;

• Deferral of 30% of existing debt to suppliers and service providers, other than small suppliers, manpower companies and specified other suppliers, for two years from approval of the arrangement, with those amounts to be repayable thereafter as a loan in 36 equal monthly installments with 2% annual interest without linkage;

• A request by Mega Retail to Alon Blue to enable suppliers and service providers, for a period of 12 months from approval of the arrangement only, to convert their deferred debt into ordinary shares of Alon Blue, subject to approval of its shareholders and applicable law; and

• Subject to court approval, right of Mega Retail to assume or reject existing agreements, including lease agreements that Mega Retail concludes are not economical. The lease payments for properties assumed by Mega Retail would be decreased by 5% until the end of the lease terms unless otherwise agreed. Lease payments would be made monthly.

Alon Blue said the proposal does not include deletion of any debts to the applicable creditors, only an extension of the applicable repayment period.

Union agreements

According to the release, these requests are in addition to Mega Retail’s recently announced agreement with its labor union, which includes reduction of salary by unionized employees totaling NIS 26.25 million in 2015, reduction of salaries of non-unionized employees by 10% and agreements by Alon Blue to provide a credit line of up to NIS 120 million to Mega Retail to assist with peak temporary liquidity and to extend loans to Mega Retail in amount of up to NIS 100 million beginning on June 1.

The loans will be repayable from Mega Retail’s profits in 36 monthly installments beginning in January 2020.

Alon Blue said Mega Retail intends to continue to operate and serve its customers in the ordinary course of business.

“Overall, we continue to believe in Mega Retail and are committed to executing the strategic steps that we already started with the agreement with our employee union and bring Mega to its proper place in the Israeli retail industry,” Mega Retail chairman and Alon Blue chief executive officer Avigdor Kaplan said in the release.

“Mega Retail is now looking for support from additional other relevant parties in order to assist Mega Retail.

“We see our suppliers and service partners as full partners, and we all understand that in order to maintain healthy competitiveness in the industry, for customers and suppliers, Mega Retail must remain a major player, and its success is crucial and is a mutual interest for the benefit of all.”

Based in Rosh Ha’Ayin, Israel, Alon owns and operates supermarkets and specialty stores.

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