Pilgrim's Pride Corp. filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code on Monday after heavy debt and low chicken prices put one of the world's largest chicken companies in a squeeze.Wall Street had been bracing for a bankruptcy filing for several weeks as Pilgrim's Pride sought more favorable terms from lenders and pursued additional investors. But when no white knight surfaced, the company's board voted Sunday to file a bankruptcy petition, seeking to reorganize the company.
In its filing with the U.S. Bankruptcy Court for the Northern District of Texas, Pilgrim's Pride listed $3.75 billion of assets and $2.72 billion of liabilities.
The Pittsburg, Texas, company said it plans to operate normally at its 35 chicken-processing plants and 11 prepared-foods facilities as it reorganizes. It has lined up $450 million of debtor-in-possession financing led by Bank of Montreal to pay wages and other obligations. Its largest unsecured creditors include agribusiness giant Cargill Inc., which it owes $1.5 million, and San Francisco bank Wells Fargo & Co., which it owes $25.7 million.
In theory, the filing could help the struggling chicken industry rebound after being pinched by high prices for the corn and soybeans used in chicken feed and low retail prices for chicken meat.
Crop prices have fallen from this year's peak, but not by enough to ease the pressure on the industry.
Analysts hope that bankruptcy protection will make it easier for Pilgrim's Pride to rid itself of excess production capacity, a move that could help lift chicken prices by reducing supply. But Meaghan Repko, a spokeswoman for Pilgrim's Pride, said the company has no plans to cut its capacity.
The filing could benefit rival Tyson Foods Inc. by spooking some Pilgrim's Pride customers into seeking another supplier. But it is far from clear exactly how Pilgrim's Pride will reorganize, and that weighed on shares of Tyson, based in Springdale, Ark. In 4 p.m. composite trading on the New York Stock Exchange, Pilgrim's Pride shares were down 53 cents, or 46%, at 62 cents; Tyson's shares were down 68 cents, or 10%, at $6.03.
The Pilgrim's Pride bankruptcy proceedings will put a dent in the fortune of Lonnie "Bo" Pilgrim, who built the family-controlled company during his 30 years as chief executive and remains senior chairman. As of mid-October, his 34% stake in the company was valued at about $100 million, according to Capital IQ. Mr. Pilgrim's stock, along with shares of other investors, is expected to lose most, if not all, of its value as a result of the reorganization.
The troubles at Pilgrim's Pride started two years ago, when the company paid $1.1 billion to buy rival Gold Kist Inc. and gained control of 26% of the nation's bird-slaughtering capacity, pulling ahead of Tyson Foods. The deal saddled Pilgrim's Pride with a debt load that became more difficult to manage as credit dried up, feed prices rose and a glut formed in the poultry market.
The Pilgrim Pride's bankruptcy is among the most dramatic financial fallout yet from the economic slowdown spreading across the Farm Belt. Ethanol producer VeraSun Energy Corp. filed for Chapter 11 bankruptcy protection in October. Like Pilgrim's Pride, VeraSun made an expensive acquisition -- the $700 million purchase of rival US BioEnergy Corp. -- just as soaring grain prices inflated its costs of doing business, and then made some grain trades that turned sour.
Pilgrim's Pride reached out to dozens of hedge funds and private-equity funds in recent weeks for rescue financing, but found little interest in providing new money for the company, said two people familiar with the matter. Some hedge funds told Pilgrim's Pride they needed to maintain liquidity to repay their own investors by the end of the year.
Among the private-equity firms contacted by Pilgrim's Pride or its advisers were Cypress Group and Ares Management LLC, but both declined to invest, these people said. Neither Cypress nor Ares were available for comment.
Pilgrim's Pride tried to fill a growing need for cash to satisfy its secured and unsecured lenders with a second-lien loan. The company was close to a deal for such a loan a few weeks ago, these people said, but the effort fell apart. Investors weren't confident about when the grain market would turn lower, said one person familiar with the situation.
