ASHEVILLE - Earth Fare's debt to its largest creditors had climbed upwards of $138 million before the natural foods retailer filed for bankruptcy, according to court documents filed Feb. 4.

According to its filing with the District of Delaware United States Bankruptcy Court, the Asheville-based grocery store chain owes $63 million in bank loans, originally secured in 2017. The company owes $42 million to Fifth Third Bank and $21 million to Wells Fargo.

Last July, Earth Fare borrowed another $14.8 million, with an option for $4 million more, bringing its total secured debt loan to nearly $78 million. That lender is not named, and the repayment term was through June 30 of this year.

Those banks, and any other “secured lenders” Earth Fare had, will be first in line to get money they're owed after the grocer's assets are sold.

“They get first dibs,” according to Sarah Foss, a senior legal analyst with Debtwire, which provides news, data and analysis on debt markets worldwide. “Unsecured vendors will get essentially what remains after the secured lenders get what they’re owed.”

Both the company's assets and its liabilities are listed at $100-500 million in the petition for bankruptcy.

The grocer's books and records list approximately $60 million in "outstanding trade liabilities and other unsecured obligations," including nearly $10 million owed to United Natural Foods Inc. from Lincoln, Rhode Island.

“Unsecured” lenders — in this case mostly companies that supplied Earth Fare with merchandise — will be at the back of the line to recoup money.

What is secured debt?

Formerly, Foss practiced law in restructuring cases, business reorganizations and Chapter 11 bankruptcy at law offices in New York and Houston. She employed an analogy any homeowner could understand to describe creditors' situations.

“It’s kind of like on your house — you have a mortgage on your house, and if you don’t pay your loan, the bank can come in and foreclose,” Foss said. “That’s secured debt.”

In this case, in exchange for loaning Earth Fare money, the lenders have liens on “pretty much all of the assets of Earth Fare,” Foss said. That secures their debt, limiting their overall risk.

Court records indicate the store's debt issues came to a head on Jan. 31, when Earth Fare's largest supplier, unidentified in the documents but likely UNFI, said it would no longer supply merchandise to the store.

The Citizen Times could not reach UNFI for comment.

By early February, Earth Fare's approximately 3,270 employees, about 1,637 of whom worked full-time, found they'd soon be without work. Employees are not covered by the Chapter 11 bargaining agreement.

"I feel the worst for the people at store level," said Ric Goodman, whose Leicester-based company G.A.S. Distributors sold coffee to 28 Earth Fare stores under the label Shade Raised Organic Coffees.

Regarding employees and the imminent closures, Earth Fare spokeswoman Jennifer Mercer said severance packages will be available, although she could not give specifics.

“What I can tell you is everything the company can do for them, they will do,” Mercer said.

Asked if severance packages will be provided to all employees or just for some positions, Mercer said, “That’s what I can’t get into, the details of that.”

Earth Fare earlier this week started liquidation sales at all of its 50 stores. Stores will close once inventory is sold, probably within two-four weeks.

$465 million in annual revenues

Goodman said Earth Fare owes him an undisclosed five-figure sum. He said sales from the soon-to-shutter stores represented 25-30% of his gross sales.

Earth Fare's original Westgate location started selling Goodman's coffee 23 years ago. His company's output grew with the store, with SRO Coffee beans eventually stocked in more than two dozen locations. But Asheville's Earth Fare stores always sold the most coffee.

"They were the money makers, and I figure if we were doing well, other vendors were too," Goodman said.

Founded as Dinner for the Earth in 1975, the store was renamed Earth Fare in 1994 and remained locally owned until 2007. Founder Roger Derrough and his business associates sold what was then a 13-store chain to a Boston company that expanded the store to 10 states.

Oak Hill Capital Partners, a private equity firm in New York, now owns Earth Fare.

Ultimately, Earth Fare grew into a business with more than 50 locations in the Midwest, Mid-Atlantic and Southeast, eventually reaching approximately $465 million in annual revenues.

Rapid growth, expensive improvements

Earth Fare's aggressive growth strategy also included expensive capital improvements in existing stores, including wider aisles and new layouts, bankruptcy documents say.

Other growth strategies happened online. An e-commerce campaign, for example, included Earth Fare’s Instacart rollout in December 2018. Court records show Earth Fare still owes Instacart, an online grocery delivery service, $216,188.

While many of the company’s expansions were successful, court documents say, others struggled for a variety of reasons, including location or competition.

The failed stores, expensive modernization efforts and significant capital improvements on legacy stores "caused a strain on liquidity," according to court documents.

Citing the store's extreme debt, Goodman said he doesn't expect to see a dime.

"I know that if they owe that much money, the bank's going to be the first in line," he said.

More on Earth Fare:

While G.A.S. Distributors isn't in danger of closing, Goodman said, Earth Fare's debt problems have long reach.

Some of the coffee label's most popular beans, for example, come from Costa Rica.

"I have to call my good friend and supplier (there) and discuss our allotment," Goodman said. "I usually buy coffee by the container load."

Top 11 unsecured creditors:

1. UNFI, a natural foods distributor from Lincoln, Rhode Island: $9,597,958.

2. Inland Seafood, an Atlanta-based meat and seafood distributor: $6,202,266.

3. Albert's, a vendor of fresh produce, and a subsidiary of UNFI: $5,892,652.

4. Crosset Co., a Cincinnati-based vendor of value added and fresh produce:

$5,253,567.

5. Gourmet Foods International, a Chicago-based vendor of cheese, meat, hors d'oeuvres and baked goods: $2,328,328.

6. Southeastern Products, a female-owned retail design and branding company:

$1,023,672.

7. First Source, LLC, a Virginia-based vendor of bulk and packaged candy, nuts and snacks: $957,258.

8. Bunzl Distribution Southeast, an Atlanta-based supplier of disposable paper and plastic packaging supplies: $822,747.

9. St. Johns Parkway Land Trust, a not-for-profit Florida land conservation and trust: $765,944.

10. Hissho Sushi, Houston-based pre-made sushi distributor to grocery stores: $687,625.

11. Stores Consulting Group: New Jersey-based retail training and business consulting group: $665,561.

Mackensy Lunsford is an award-winning staff writer for the Asheville Citizen Times, former professional line cook and one-time restaurant owner.

Reach me:mlunsford@citizentimes.com.

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Note: This story has been amended to reflect another secured loan Earth Fare took out in 2019.