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Private equity giants square off in Bi-Lo bankruptcy

Lone Star has a plan to keep total control of bankrupt grocer Bi-Lo outside of bankruptcy, while a lending group that includes KKR wants to split control of the company.

Private equity firms have taken the gloves off in a bankruptcy battle to seize control of bankrupt grocery chain Bi-Lo.

Lone Star, which acquired Bi-Lo for more than $600 million in 2004, has filed a reorganisation plan under which the firm will contribute $350 million to the company that will allow it to pay off its debt. Lone Star will put $150 million of equity into the company, plus another $200 million through a term loan.

Lone Star will have 100 percent control of the reorganised company under its plan.

But Lone Star’s plan is being challenged by a proposal put forth by a group of creditors and lenders that would split ownership of the company between Lone Star and the groups.

The lender group, which owns a $260 million term loan that matured in March and forced Bi-Lo into bankruptcy, is made up of Ares Management, Kohlberg Kravis Roberts, Canyon Capital and affiliates of Bayside Capital and Wellspring Capital Management.

Under the rival plan, the term loan lenders would exchange their debt for $164.1 million in new debt and common shares in the reorganised firm equal to about 43.1 percent of the company. The plan would leave Lone Star with about 51.9 percent of the company and vendor C&S Grocers with about 5 percent of Bi-Lo.

A bankruptcy judge will hear arguments about both plans in December.

Bi-Lo operates supermarket stores through the southeastern US, including in South Carolina, North Carolina, Georgia and Tennessee. The company filed for bankruptcy earlier this year after being unable to refinance a maturing term loan. The company’s earnings before interest, taxes, depreciation and amortisation dropped from $114 million in 2006 to $78 million in 2008.

Lone Star acquired Bi-Lo through its fifth fund, which closed on $5 billion in 2004. The firm is targeting $20 billion for two separate funds that will contain $10 billion each. Lone Star is raising its second real estate fund for investments in distressed commercial assets, while a second vehicle, Long Star Fund VII, will take advantage of distressed residential mortgages and defaulting corporate bonds and loans.