Thomas MacMillan File Photo
Gwyneth Jones and baby Hazel in the market’s produce section.
A local philanthropist is seeking to help employees buy the troubled Elm City Market — while the market’s board is seeking to raise new money to pay off some debts and continue instead as a member-owned cooperative.
Those two competing visions of the market’s future have emerged as the future of the store — downtown’s only grocer — hangs in the balance.
The 2,200-member cooperative, which opened on the ground floor of the 360 State St. residential tower in November 2011, recently received default notices from both its landlord (in May) and then its bank (on Aug. 5). It owes around $500,000 to the landlord, Multi-Employer Pension Trust (MEPT); and is behind on a $3.6 million federally-guaranteed loan from Webster Bank.
The co-op board met recently and voted unanimously to accept a rescue proposal by a national not-for-profit group, the National Cooperative Grocers Association. The NCGA would lend the market $700,000; combined with another $300,000 the board has raised, that would bring the market current on its debts. The NCGA would then come in and manage the market.
The board’s vote is not binding — because the bank and the landlord are the ones who make the decision about how to proceed on the defaults. From the market’s inception, it has been behind on the original terms of the Webster loan; the loan was restructured early on so that to date the market has paid only on interest, not on principal.
Webster is about to decide whether to OK the co-op’s preferred plan or to seek liquidation of the assets at an auction sale under Article 9 of the Uniform Commercial Code.
“Very shortly we hope to have a resolution. It could be a matter of days and it could be a matter of weeks,” Webster regional President Jeff Klaus told the Independent Monday. “We are trying to arrive at a solution that keeps the market open.”
That does not necessarily mean keeping it open as a member-owned co-op. If the bank does force an auction, a new entity is ready to bid: an employee-owned for-profit cooperative backed by a local philanthropist named Linfield Simon.
Simon runs the not-for-profit charitable RISC Foundation, which has established a subsidiary, called New Haven Investment Fund, LLC, with a mission to help improve New Haven’s economy. Simon told the Independent Monday that his organization has already tried to help the co-op stay in business: It loaned the market $150,000 two years ago, then guaranteed a new $125,000 loan from Webster Bank this June.
That didn’t prove enough. The market still couldn’t pay the landlord or the bank, or the state Department of Economic and Community Development, which also gave the market a loan. Months of consulting and negotiations ensued. Simon said he “indirectly” came up with a plan along with the market’s current managers to have them create a new for-profit entity that would buy the grocery at the Article 9 auction. Simon’s organization would offer the new entity a long-term low-interest loan to both purchase the market’s assets and to start running it. Simon declined to identify the amount of money involved. He said other lenders are also ready to help.
“Our plan was in existence before the co-op’s plan. Our money was there before the co-op’s money theoretically was there,” Simon said.
In a letter to the co-op board, Simon wrote: “The foundation believes that there is a substantial likelihood that the market will have to close its doors while the board of the market is attempting to negotiate a solution to the market’s financial problems that does not involve an Article 9 friendly
foreclosure, and it has attempted to communicate this to the board, and it believes this would be a tragedy.” Click here to read the full letter.
A “friendly foreclosure” under Article 9 would allow the market a fresh start unencumbered by debt. However, an Article 9 sale would not guarantee that the new entity Simon’s foundation supports would become the new owner. Anyone can show up at an auction and offer a higher bid. Simon said he considers the auction “theoretical” in the sense that the assets of the store aren’t worth to other potential bidders much without a lease.
The advantage for Webster in an auction: It would conceivably lose a lot less money on its loan. The U.S. Department of Agriculture guaranteed 80 percent of the $3.6 million loan. Webster would be able to pursue reimbursement under that guarantee should it force an auction.
Paul Bass File Photo
The NCGA rescue plan would keep the market as a member-owned co-op and bring in the group’s management consultants and extensive purchasing networks, said board member Pedro Soto (pictured on the floor of the company he runs in town, Space-Craft).
That rescue plan “keeps the market as it currently is, which is a member-owned co-op. It is also the most optimistic about the store’s future success. It brings in a management team right away that can assist the current team at the market. They bring in a ton of expertise and know-how,” Soto said Monday.
NCGA helps 142 food co-ops in 38 states “optimize operations, marketing, and sales through collective purchasing power,” according to the board.
Soto said Monday that the idea of wiping out debts under an Article 9 auction would make sense if no other viable alternative existed. With the NCGA alternative on the table, he said, the board felt it should look out for the members who have invested in the store and seek to avoid socking taxpayers by having the bank call on the federal loan guarantee.
The question for the market’s bank and landlord is whether the market, even if it’s run better, can pay the bills with its current level of debt.
“The Board understands that Webster Bank may have strong incentives to favor the Article 9 sale, in particular, and not insignificantly, because it will keep the Market open and to continue to serve New Haven,” the board wrote in an Aug. 23 letter to members detailing the current predicament. (Click here to read the full letter.) “However, we are also hopeful that the bank will remain the good friend of Elm City Market and the New Haven community that it has been since the inception of the co-op, and will consider NCGA’s sound arguments and decide in favor of that plan. We also hope that our landlord will see the benefit of the NCGA plan to its tenants at 360 State Street, many of whom are also member-owners.”
More aisles of food, less aisles of dietary supplements....