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Fairway Group's debt downgraded again by Moody's

Fairway's debt was downgraded again by Moody's,

Fairway's debt was downgraded again by Moody's, less than two weeks after it warned investors that it might need to raise more money to stay in business. Credit: Barry Sloan

Troubled grocer Fairway Group Holding Corp. has had its debt downgraded again by Moody’s Investors Service, less than two weeks after it warned investors that it might need to raise more money to stay in business.

The Manhattan-based grocery chain, which competes with companies such as Whole Foods and Trader Joe’s, has 15 grocery stores in the New York region, including three on Long Island.

“Fairway’s operating performance and liquidity continues to be weak and we expect the company to breach its financial covenants in the fourth quarter ending April 3, 2016,” Moody’s senior analyst Mickey Chadha said in an announcement Wednesday that it was downgrading a $267 million loan and a $40 million line of credit.

Fairway didn’t immediately respond to a request for comment on Thursday.

Fairway said on Feb. 11 that it had been notified of a possible delisting of its shares by the Nasdaq Stock Market because their value had fallen too low. Its stock closed at 40 cents a share at 4 p.m. Thursday, up a penny and off its 52-week high of $7.81 in April.

In its latest financial report, filed Feb. 5 for the fiscal quarter ended Dec. 27, the company said, “As a result of our significant leverage, recent underperformance compared to expectations and challenging current market conditions, we believe we will need to raise additional capital to de-lever our balance sheet to allow us to continue as a going concern in the long term.”

The company reported a net loss of $9.7 million in that quarter. It has lost money in each of its fiscal years since 2010 — $46.5 million last year. It went public in 2013, announcing a major planned expansion that it subsequently scaled back.

Phil Lempert, national food marketing expert from Santa Monica, California-based, said the Fairway ambience didn’t travel well from Manhattan, where the chain was founded, to the suburbs into which it expanded.

“The culture of Fairway — with the hustle and bustle especially in the checkout lanes — is a very Manhattan thing,” Lempert wrote in an email Thursday.

Moody’s downgraded Fairway’s corporate family debt rating on Wednesday from Caa1 to Caa2. Debts rated Caa are considered subject to very high credit risk, according to Moody’s website. The number “2” following the new rating indicates that the debt ranks in the midrange of risk in that category.

The Moody’s announcement also said it expected that “cash flow and profitability will continue to be strained as same store sales face continuing competitive pricing pressures.”

Moody’s also downgraded Fairway’s debt in September.


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