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7-Eleven chooses Chapter 11 refinancing

Southland Corp., owner of the 7-Eleven chain that pioneered convenience store shopping, filed for protection from creditors Wednesday, driven into federal bankruptcy court by a $4.9-billion debt-financed takeover and tough competition. The Chapter 11 filing came just after midnight, ending months of negotiations that had failed to persuade enough creditors to go along with a refinancing that would have paid them pennies on the dollar for their $1.8-billion in bonds and given them 25 percent of the restructured company.

Along with the filing, which listed assets of $2.53-billion and liabilities of $3.38-billion, Southland submitted a "prepackaged" reorganization plan that finally won approval of about 90 percent of the debtholders, enough to win confirmation in bankruptcy court.

The bankruptcy plan is essentially the same as the restructuring proposal, which failed to win support of enough bondholders by Tuesday's deadline. Some bondholders were pushing for a bankruptcy filing as a way to protect their investments.

"In light of the exchange offers and the high level of support we have received for our prepackaged reorganization plan, we believe this to be the best alternative to complete a financial restructuring quickly," said Clark Matthews, Southland's chief financial officer.

"We hope to obtain court approval of the prepackaged reorganization plan as soon as possible."

U.S. Bankruptcy Judge Harold C. Abramson set a Dec. 14 hearing on the confirmation plan, and company spokeswoman Cecilia Stubbs Norwood said Southland hopes to emerge from court supervision before the end of the year.

Norwood said store operations will not be affected by the filing and the company has commitments for $400-million in financing while it proceeds through the bankruptcy process.

The chain once reached a peak of more than 7,000 stores worldwide. Today there are closer to 6,800, with another 5,900 run by affiliates and franchisees.

Southland has been struggling since 1987 when the founding Thompson family, fearing a takeover by the Belzbergs of Canada, took the company private in a $4.9-billion leveraged buyout.

The LBO, the second highest ever at the time, became more expensive on Oct. 19, 1987, when the Dow Jones industrial average plunged 508 points. The crash made it more difficult and more expensive to arrange financing for the deal.

Southland first proposed its restructuring in March of this year, acknowledging that dwindling profits would make it impossible to service the debt brought on by the 1987 buyout.

In April, Southland revealed a fourth-quarter loss of $1.01-billion as it wrote off "good will" from the buyout. The company denied that the writeoff proved the Thompsons paid too much in the buyout, but only reflected a decline in the value of the company's assets.

At first, Southland proposed selling 75 percent of the company for $400-million to Ito-Yokado Co. Ltd. and Seven-Eleven Japan Co. Ltd., its Japanese franchisees.

The Thompson family would keep 15 percent and the creditors would get the rest, along with new securities.

But enough bondholders would not go along. In July, the Japanese agreed to take a smaller piece of the company, 70 percent, and provide more money, $430-million. The Thompsons also agreed to cut their holdings to 5 percent, while creditors got 25 percent of the reorganized company in addition to improved terms on their bonds.

However, creditors forced Southland to require that 95 percent of the bondholders go along before they would agree to the swap, and the threshold proved too high to meet by this week's deadline.

Although the reorganization plan mirrors the restructuring proposal, it now must be approved by a bankruptcy court and could still face objections.

If it succeeds, it will end the Thompson family's control of the company. None of the three brothers who run Southland would comment on the bankruptcy, Norwood said.

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