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Report: Bankrupt Mi Pueblo Evaluating Possible Sale Or Financial Lifeline

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San Jose, Calif.-based grocery chain Mi Pueblo Foods, which filed for Chapter 11 bankruptcy protection last July, has asked for court permission to hire investment bankers as it seeks a financial lifeline or a possible sale of the company.

The Silicon Valley Business Journal reports that Mi Pueblo wants to retain Piper Jaffray, the Minneapolis-based investment bank and asset management firm, according to court records. Piper would assist Mi Pueblo “in maximizing the value of its assets through a sale, financing, equity placement or other transaction…” according to a late-December court document.

At the same time, Mi Pubelo also is evaluating interim financing to help the company through “a seasonal slow time,” a spokesman told the Journal.

Time may be of the essence: According to its largest creditor, Mi Pueblo risks running out of cash by next month, though Mi Pueblo on Monday disputed that timeline, according to the Journal.

Mi Pueblo and a related entity, Cha Cha Enterprises, filed for Chapter 11 bankruptcy protection in July. Mi Pueblo operates 21 Hispanic-oriented stores in the region; Cha Cha is primarily the real estate arm of the company.

Mi Pueblo says the bankruptcy was brought on by higher labor costs after a federal immigration audit. Those higher costs caused Mi Pueblo to miss profitability targets with its primary lender, Wells Fargo, according to Mi Pueblo’s attorneys.

While Mi Pueblo executives said at the time that they would try to renegotiate terms with Wells Fargo, the request to engage Piper Jaffray may suggest that such efforts have been unsuccessful. Wells Fargo did not respond to a request for comment from the Journal.

The move to retain the firm comes after several investors approached the company in recent months, seeking to purchase equity or supply debt, a spokesman said. “Mi Pueblo decided to hire a national investment bank to make sure that the company saw the best options for financing, whether it was debt or equity or a mix of both,” spokesman Rolando A. Bonilla told the Journal.

Mi Pueblo has yet to submit a reorganization plan to the court, so presumably putting together the financial pieces with help from Piper would allow that plan to come into focus.

But Mi Pueblo’s financial position may be worsening. Attorneys for Wells Fargo said in a court filing last week that comparable store sales have dropped. Weekly sales were down as much as 31 percent in December compared to a year ago, according to Wells.

“Moreover, financial projections provided by Mi Pueblo to the bank indicate it will run out of cash by Feb. 9, 2014,” attorneys for the bank said in a Jan. 3 filing.

Bonilla said the company has money to operate “well past” February, and currently has sufficient cash to meet ongoing expenses, the Journal reports. Indeed, it is not the first time Wells has claimed Mi Pueblo was on the brink of running out of cash. Wells previously projected Mi Pueblo’s cash balance could go negative by November. That didn’t happen.

The Journal says that, locally, San Jose-based Chavez Supermarkets is Mi Pueblo’s biggest competitor. The family-owned supermarket chain has nine stores in the Bay Area.

Mi Pueblo was founded in 1990 by Juvenal Chavez and his wife in a 5,000-s.f. store called Country Time Meats, and grew into a regional success story, with Chavez becoming a community leader. The company boasted $350 million in revenue before the bankruptcy filing.

A sale of the company would cut against Mi Pueblo’s efforts to operate independently in bankruptcy.

“Since the I9 (immigration) audit was started, the company has been retrenching, and focusing much of its attention on hiring and training,” Bonilla told the Journal. Mi Pueblo “stopped all new store growth and (has) tried to meet the needs of their customers and their employees. Mi Pueblo was growing prior to the employment problem, and they are seeking capital in order to continue to grow after the bankruptcy is behind them.”

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