Mi Pueblo, the San Jose-based grocer with a store in East Palo Alto, will ask a federal court to approve a credit package that could help keep the company from bankruptcy, documents in the U.S. Bankruptcy Court in San Jose show.
Mi Pueblo and Cha Cha filed for Chapter 11 bankruptcy on July 22, 2013, after the 21-store chain was out of compliance with a provision in its agreement with Wells Fargo regarding profitability ratios. A federal immigration audit required Mi Pueblo to replace workers whose documentation was under review, which caused a substantial increase in payroll expenses, according to court documents. Prior to its bankruptcy filing, in May 25, 2013, Mi Pueblo owed workers more than $3 million in wages, taxes and benefits, and $1.5 million for time off and vacations, according to court documents.
Victory Park previously gave the grocer $6 million in financing. Mi Pueblo needs approximately $26.75 million and Cha Cha needs $9.3 million to pay off bank debts. Victory's debtor-in-possession financing would immediately infuse the two entities with $42 million -- $32.75 million to Mi Pueblo and $9.3 million to Cha Cha. Mi Pueblo and Cha Cha would repay the loans at 8 percent annual interest. Without the loan and the reduced $36.1 million payment to Wells -- the bank claims it is owed $38.5 million -- Mi Pueblo would have to close its doors and liquidate, according to court papers.
Mi Pueblo canvassed the market for investors, partners and acquirers, but only Victory Park showed a willingness and ability to pay the loans, according to documents.
In 2012, Mi Pueblo had more than $350 million in sales, and through Cha Cha, it owns substantial properties in Mountain View, Salinas and Watsonville, along with other property, according to court documents. It has $59.5 million in assets.
Juvenal Chavez, the company's president, started Mi Pueblo in 1991 as Country Time Meats, a 5,000-square-foot store in San Jose. In 22 years, the company has grown to 21 stores, including 15 in the Bay Area, and it employs more than 3,200 people. It is the fastest growing supermarket chain in Northern California, according to court papers.
The stores have bilingual staff and offer merchandise geared to Hispanic buyers, and it offers full-service grocery stores in underserved communities. In East Palo Alto, residents held prayer vigils for a grocer to deliver the community from overpriced mom-and-pop markets, which had dominated the city landscape for decades, while no other grocery chain had stepped in.
One group, the Official Committee of Unsecured Creditors of Mi Pueblo San Jose, Inc., which represents the top companies owed by Mi Pueblo, has asked the court to reject the loan plan, according to court documents it filed on Feb. 18.
Mi Pueblo has failed to meet past budget projections since it filed for bankruptcy, according to the court brief. The company submitted to the court projections showing it would be able to satisfy $10 million in claims, but those claims remain outstanding as of Feb. 19, according to the committee.
Mi Pueblo is expected to lose $8 million in cash over the next 13-week budget period, the committee claimed. The $52 million in potential exit funding would at best provide only an additional $2.3 million in liquidity, it stated.
"Assuming that Mi Pueblo is able to emerge from bankruptcy at all after the transaction, it will need to implement a dramatic and hurried turnaround driven by a drastic improvement to same-store sales," and that increase has not occurred in the last year, the committee claimed.
But Unified Grocers, Inc., the holder of a $1.3 million administrative-expense claim, does not oppose the Victory loan arrangement, according to court documents. Unified Grocers did not elaborate on its support.
Mi Pueblo could not immediately be reached for comment.
This story contains 716 words.
If you are a paid subscriber, check to make sure you have logged in. Otherwise our system cannot recognize you as having full free access to our site.
If you are a paid print subscriber and haven't yet set up an online account, click here to get your online account activated.