Revco, creditors are split on bank debt question

Drug Store News, Sept 30, 1991 by James Frederick

Revco, creditors are split on bank debt question

AKRON, Ohio - Revco's creditors have filed an alternative reorganization plan for the bankrupt company in response to a plan filed by the chain's own board of directors three months ago. Both aim to pull the chain out of its three-plus-year hiatus in Chapter 11, but the two plans differ in significant ways.

The biggest difference is in the amount of bank debt the two groups assume a post-bankrupt Revco could carry. The chain's own plan of reorganization proposes that the post-bankrupt chain carry $309.5 million in bank debt after paying off all obligations. Creditors argue that the debt load envisioned by Revco's board is too high; their alternative plan assumes $205 million in bank debt.

Split decisions

The difference arises from how each plan assumes each class of creditors will be paid off. The creditors' plan, filed with U.S. Bankruptcy Court here Sept. 6, would give pre-LBO bondholders convertible preferred stock in the reorganized company in lieu of the cash proposed in Revco's plan. Junk bondholders would also trade in their notes, now a fraction of their original value, for new stock.

The creditors' plan also leaves nothing for Revco's current owners, who are heavily represented on the chain's board. Under bankruptcy law, any claims to Revco's assets by current stockholders would take a back seat anyway to claims by lending banks, trade creditors and bondholders. These groups were owed a total of $1.45 billion when the company fled into Chapter 11 protection in July 1988.

Details of the creditors' plan are not yet available. The next step will be the filing of a disclosure statement with the court which details each aspect of the payout proposal and its impact on Revco's finances. Meanwhile, the court has yet to set a hearing date on the Revco plan and disclosure statement.

Reorganization

For Revco to emerge from Chapter 11, a reorganization plan must be approved by the court with the backing of a 51 percent majority of creditors, representing two-thirds of the dollar amount owed by Revco to its claimants. Efforts to bring the chain out of its long bankruptcy ordeal have already cost it more than $50 million in legal fees. Those efforts have been stymied by continued wrangling among different groups with competing claims to the company. Continued operating losses by Revco have also complicated settlement efforts, although the chain has been a strong performance uptrend in most of its remaining markets.

For its part, Revco finds itself the object of a tug-of-war between its various classes of creditors, its current owners and its pre-LBO bondholders, all of whom have different ideas about how the company's financial obligations should be settled. But company spokesperson Diana Leuptow said Revco remains committed to a consensual agreement - whatever plan is approved by creditors.

"It will be our goal to support any plan that has consensus, is confirmable and leaves Revco in a healthy state going forward," Leuptow said. "This is not a war between two plans."

PHOTO : Al Sebok, vp of professional relations at Revco, D.S., receives the NACDS/Harold W. Pratt award from Ron Ziegler, president and ceo of NACDS, while Jan Sebok joins in the congratulations. The award, presented annually in conjunction with the association's pharmaceutical conference, recognizes the chain drug store pharmacist whose activities have contributed to the promotion, recognition and improvement of the practice of pharmacy within the chain drug store industry.