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 San Jose, Inc. and its real estate firm, Cha Cha Enterprises, will appear in federal court today, Feb. 19, to request the court’s approval of the deal. The arrangement would include a reduced payoff of $36.1 million to creditor Wells Fargo Bank as part of up to $52 million in loans from Victory Park Capital, a Chicago-based firm, according to court papers. The funding would allow Mi Pueblo to pay off its bank loans in full and have working capital for the next few months while it works to file and confirm reorganization plans.

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.

Sue Dremann is a veteran journalist who joined the Palo Alto Weekly in 2001. She is an award-winning breaking news and general assignment reporter who also covers the regional environmental, health and...

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20 Comments

  1. Traffic, I think was is a major contributor to the lack business. Only two ways out, clogged with traffic in both directions. Who wants to go there?

  2. I hope they work it out. How many times has Wells Fargo profited from the demise of business in EPA? Why can’t WF work out a deal – what benefit do they get from drumming Mi Pueblo out of business? Is there a reporter out there willing to try to answer that question?

  3. Mi Pueblo is a valuable asset to the community, offering a variety of items that can’t be found at other grocery stores. I ope they can work it out. The EP store seems to be doing quite well. Always busy.

  4. I hope they can work it out – hate to see a good business go under.

    However, to say that Wells Fargo profits from businesses going under in EPA is inane. Just how do they make money when a business they underwrote can’t pay the bills? Come one, think before you start to blame. No one wins when a business fails.

  7. I really like this store – it has some great products and great food. I like to go over there for a taco and great desert. I think their problem is that they balk at credit cards and want only debit cards. That is a no-go for me. Cash only in that case.

  10. I love this store. They have great produce, and could certainly raise their prices and still be cheaper than Safeway, etc, across the freeway.

  11. The EPA store is merely one of 21 Mi Pueblo stores. It’s the whole corporation that’s gone bankrupt, not a particular store. So suggesting that Wells Fargo is profiting from or exploiting EPA is just senseless victimhood. No point trying to demonize WF over the fact that one of their borrowers has gotten into some trouble. If anything, it seems that the Mi Pueblo management is to blame because they based their business plan upon exploiting undocumented labor and now they can’t afford to pay a proper wage to documented replacements.

    Enough said on that. Great store; I’m there a lot and there’s much to like about it — most of all those oysters they shuck and serve at the front entrance in season. I hope they make it.

  12. Deonize WF? Puhlease. It’s not demonizing when it’s accurate criticism. They’ve exploited EPA, which has nothing to do w/Mi Pueblo’s in trouble. But since they’re involved, it makes sense to mention their shoddy behavior in EPA. I suspect that MP’s management & WF are flip sides of the same coin, and therefore suited to each other, more than any of us know.

  13. So Mi Peublo breaks a contract, Wells Fargo decides to ask for their money back, and there is outrage? Consider the logic of this when wondering why communities become “underserved.” The money is Wells fargo’s after all, not EPA’s or Mi Pueblo’s.

    Talk of “exploiting” and such only makes sense if you feel entitled to someone else’s money.

    That said, this is a shame. You’d think a business like this could work.

  16. aerdii – are you pretending to not understand WF’s recent dubious history in E Palo Alto, or you really don’t know? Hmmm isn’t pro exploitation and you’re being obtuse about Hmmm’s points. Maybe that’s because you’re unaware of WF’s lousy behavior in EPA?

  17. Outside Observer, didn’t you read the article that you yourself posted? It answered your question about why the store owners aren’t in jail even though they’ve hired undocumented workers.

  18. To blame Wells Fargo is simply trying to pass the buck. Like others have said (and this applies to Mi Pueblo or private home buyers in EPA) if you enter into a contract, then default on the terms of the agreement YOU agreed to, how does that make it the bank’s fault?

    Mi Pueblo has (apparently) a bad business plan. Instead of blaming WF, you should be pleased that they took a chance on Mi Pueblo.

  19. It is still abundantly clear the people who think that they’re in the know re WF’s history in EPA aren’t in the know at all.

    Mi Pueblo’s had a dicey rep for some time, re their hiring practices. And back in the day, there were dark rumors about the founder’s family. It’d be interesting to see what an investigative reported could come up with – if it was safe enough to dig around.

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