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A&P Sets Tender Offer to Help Get Financial House in Order

MONTVALE, N.J. -- The Great Atlantic & Pacific Tea Co., Inc. here yesterday took a step toward restructuring its debt and preparing to morph into a "New A&P," with tender offers for certain of its outstanding notes.

The financially troubled chain said it made tender offers any and all of its outstanding 7 percent notes due 2007 and 9 1/8 percent senior notes due 2011.

Mariza Costa, senior retail analyst at Bernard Sands in New York, said the tender offers were a prudent financial move for the grocer, as it absorbs all the changes involved in its planned restructuring.

Costa explained the rationale behind the move. "Up until [Aug. 10], A&P had $630 million in notes, to which it had to pay interest quarterly and semi-annually, depending on the offering," she said. "During the last quarter, the company's interest expense was close to $35 million, and restructuring charges were also close to $35 million. The company continues to lose money -- $2.28 in the last quarter alone. The 9 1/8 percent notes were for a total of $217 million and were due Dec. 15, 2011, and the 7 _ percent notes were for a total $220 million and were due April 15, 2007.

"By redeeming the notes early, the company will have only $200 million remaining in 9 3/8 percent notes," Costa said. "Interest expenses will decline substantially per quarter, and the company can concentrate on reorganizing and restructuring."

Costa added that this was only one step in a substantial journey the chain must make. "A&P needs to save money and bring the business back," she said. "The company expects to achieve growth while concentrating the business to the Northeast, but it needs to figure out new ways to compete with discount stores, drug stores, and organic/natural food stores. A&P needs to stop 'bleeding.' I think this would help the company save money in the long run."

Together with the tender offers, A&P said it also began consent solicitations to eliminate certain covenants and certain events of default in the indenture relating to these notes.

A&P said the tender offers will expire at 11:59 p.m. E.D.T. on Sept. 7, unless extended with regard to either series of notes. It said Lehman Brothers, Inc. is acting as the sole dealer manager and solicitation agent for the tender offers and the consent solicitations, and D.F. King & Co., Inc. is serving as the tender agent and information agent.
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