Phar-Mor acquires $150M DIP funds - debtor-in-possession

Discount Store News, Nov 2, 1992

YOUNGSTOWN, Ohio -- Deep discount drug operator Phar-Mor, struggling to reorganize in the wake of its Chapter 11 filing, has secured $150 million in debtorin-possession financing that the company said will assure its survival through 1994.

Phar-Mor will close fewer stores than it had expected. "We renegotiated 12 leases that were originally included in the estimated store closings," said spokeswoman Carol Robinson. "Fifty will definitely close, and we're undecided about one other. At year-end, we will be operating either 258 or 259 stores."

Phar-Mor is exiting some markets, most notably in the new markets of California, Austin and El Paso, Texas, and in northern Florida, and is reportedly selling some leases to competitors like Sav-On in California and Pharmhouse (formerly S.E. Nichols) in the Northeast.

The $150 million financing "combined with our strong cash position will enable us to move forward in our reorganization plan," Robinson said. Added Tony Alvarez, president and coo, who along with vp administration Joe Bondi recently joined Phar-Mor from turnaround specialists Alvarez and Marsel, "the agreement is a major step in our restructuring efforts and helps insure the financial stability of our operations. The DIP fund and trade lien, combined with our cash position, will help restore the confidence of our suppliers. In fact, most important suppliers have already indicated that they will ship to us on normal terms once the DIP facility is in place."

Robinson noted the rapid decision to file Chapter 11 prevented a "long, slow slide into bankruptcy that would have alienated our core customers. Because we were able to restock and maintain our inventory under Chapter 11, there has never been an extended period" of obvious shortages of merchandise. "We are already receiving our Christmas merchandise, and the stores are uniformly well-stocked.

Kmart has taken over the prescription records for about 20 stores that have been or are scheduled to be closed.

Mickey Monus, who Phar-Mor accused of financial mismanagement and fraud that resulted in the Chapter 11 filing, has himself filed for protection under Chapter 11 and is the target of a dual investigation by the FBI and the U.S. Attorney's office. Phar-Mor, Robinson said, "continues to cooperate with the FBI and the U.S. Attorney's in their investigation. In a related event, Westinghouse warned investors that it expects poor earnings this quarter part due to writing off its investment in Phar-Mor.