Uni-Marts LLC Files For Bankruptcy

Uni-Marts LLC, operator of 283 convenience stores in Pennsylvania, New York and Ohio, has voluntarily filed bankruptcy, but in the meantime will continue operating most of its stores without interruption. The move, however, will result in closure of at least 45 Uni-Marts stores.

The company and six subsidiaries filed voluntary petitions this week under Chapter 11 in U.S. Bankruptcy Court for the District of Delaware. The company is also exploring opportunities to sell.

“The overall condition of the economy, aggressive competition in the areas in which we operate, increased fuel and other inventory prices and other matters outside our control have reduced the company’s cash reserves which prevented us from executing our business plans and tightened our operating margins,” said Henry Sahakian, Uni-Marts’ founder and CEO.

“Additionally in January 2007, certain dealer/operators sued the company related to Uni-Marts’ sale of certain stores to the dealers,” Sahakian added. “While we do not believe the company committed any wrongdoing, we agreed to settle the matter in November 2007 in order to avoid further litigation costs. The costs of defending and settling the litigation substantially reduced our cash reserves.”

That said, Uni-Marts is currently in litigation with its insurer because of the insurance company’s denial of coverage on the matter.

Sahakian said Uni-Marts reclaimed 61 dealer-run store locations in recent years when those dealers were no longer able to satisfy their ongoing obligations. The company dedicated “significant time and more than $8 million to restock, renovate, reequip, address prime landlord obligations and reopen many of the stores,” but the stores have often taken months to return to their prior sales volumes and profitability.

The bankruptcy filing allows Uni-Marts to maximize returns available to its creditors, while the company is also restructuring its balance sheet, renegotiating unfavorable leases and other contracts and closing underperforming locations.

Since September 2007, Uni-Marts has been exploring opportunities to sell the company. Several investors have expressed interest in the stores, according to Matrix Capital Markets Group LLC, Uni-Marts’ investment banker.

“There has been significant interest in Uni-Marts among potential strategic buyers,” said Thomas Kelso, managing director of Matrix. “Uni-Marts is well known in the industry as a solid performer, and the business will fit nicely into other existing chains. A bankruptcy sale creates a real opportunity for the right buyer.”

Uni-Marts expects to file a motion soon with the Bankruptcy Court seeking approval of a stalking horse bidder to purchase substantially all of the operating assets.

Uni-Marts will also seek approval of a competitive bidding and auction process to offer other interested bidders an opportunity to win the right to purchase the stores and supply operations. The company said it believes it has adequate cash and sufficient cash flow to continue paying its post-petition creditors according to normal terms.

For added protection, Uni-Marts has secured (subject to court approval) $3.5 million of debtor-in-possession (DIP) financing from SC Capital Group LLC. The DIP agreement will allow Uni-Marts to maintain adequate working capital and have access to additional liquidity throughout its restructuring process.

In the short-term, Uni-Marts expects to close 45 underperforming company-operated stores, which will result in “significant cost savings,” the company said. In many cases, the closed stores are near stronger performing Uni-Marts stores that will continue to operate, though some closures will result in a Uni-Marts store exiting a market area entirely.

Once the company finalizes its list of closing stores, it can file a motion with the Bankruptcy Court to reject the related leases and exit the stores.

“Regardless of whether we will sell the Company or reorganize and emerge, we are confident that Uni-Marts will be stronger at the end of this process,” Sahakian said. “We have appreciated the tremendous support of our customers, employees and vendors throughout our history and look forward to continued good relations during this important phase."

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