Can America Survive Without the United States Postal Service?

Story first reported from Yahoo.com

As the United States Postal Service misses key financial payments, critics and supporters speculate about bankruptcy or worse for an institution that predates the Constitution and the Declaration of Independence.

USPS officials have said they will miss two benefit payments mandated by Congress, which has caused a whirlwind of speculation about the future of the Postal Service.

The United State Postal Service is one of the few current government institutions spelled out in the Constitution.

The ability of Congress to “establish Post Offices and Post Roads” is spelled out in Article I, Section 8, of the Constitution, as part of a short list of enumerated congressional powers.

The Framers saw the postal system as critical to facilitating commerce and communications among the 13 states, and it was ranked as a high-priority item, along with the ability to create money, form an army, and ensure fair trade among states.

A lot has changed in 225 years, and today, the Postal Service is in a bad financial way–and subject to the control of a Congress that can’t agree on financial assistance for it.

One problem is the unique charter for the Postal Service: It is a federal institution and Congress has an oversight role (along with the executive branch), but the Postal Service has to pay its own way.

A second issue is that a 2006 act requires the Postal Service to fund its employee retirement plan for decades in advance. That additional cost has places a huge financial burden on the Post Office.

A third issue is that the Postal Service has a heavy union presence, which critics say restricts its ability to cut costs and remain competitive with UPS and FedEx.

And finally, the Postal Service has taken a huge financial hit on profits from first-class mail and package delivery, thanks to UPS, FedEx, the Internet, and mobile devices.

Rand Paul, the libertarian senator from Kentucky, told the conservative website Newsmax that a bankruptcy filing was certainly in the Postal Service’s future.

Paul says the USPS, as a private or public institution, needs to contain union costs, and only a bankruptcy filing would let the Post Office cut expenses related to its unionized employees.

Fredric Rolando, the head of the letter carriers’ union, says it’s an issue with congressional policy that is causing the business crisis.

“Besides bringing the Postal Service to the financial precipice, pre-funding also has prevented the agency from doing what it has done for 200 years–adapt to an evolving society. Instead, this artificial political crisis has focused management’s entire energy on a desperate attempt to pay bills that no one else has to pay,” he said in a statement.

What happens to the Postal Service?

Postal Service critics also want to see the service made into a privately run institution. One idea put out by conservative think tanks is that the USPS could monetize its huge real estate inventory, valued as high as $105 billion, to defray costs, attract investment and remain competitive with other delivery services.

But realistically, could the Postal Service actually shut down, if its problems grow worse and Congress can’t or doesn’t act to help? And how would Americans in rural areas or citizens with a lack of access to digital alternatives survive a postal outage?

No Immediate Shutdown for the Postal Service

For a variety of reasons, the Postal Service doesn’t face an immediate shutdown. For pure business reasons, UPS and FedEx partner with the Postal Service on local delivery, especially for packages ordered via Internet shopping. A shutdown would have a ripple effect on the whole package delivery business, and on businesses that market through the mail.

And then there is the issue of privatization and how the process would work.

Proponents of selling the Postal Service believe it would provide a financial lifeline to the 225-year-old system.

Rand Paul, however, points out one key problem.

“I’ve been trying to find somebody who would buy it. I can’t find anybody who’s interested in buying the Post Office. We’ve talked about this for decades,” he told Newsmax.

One reason is the huge unfunded pension obligation compiled by the Postal Service over the years. A buyer would have to pick up the tab for $46 billion, just in pension costs, according to a Bloomberg analysis.

Peter Orszag, an economist and former Obama administration official, argues that privatization is the only way to go, because it would remove Congress from having any role with the Postal Service.

“The U.S. Postal Service has a long and storied history. Yet it is now struggling because the world has changed and because congressional sclerosis has prevented it from adapting to the new realities. The best way to modernize it now is to move it out of the government,” he says.

Finally, there are a slew of potential constitutional issues related to removing the Post Office from the government system.

Postal Service supporters say it is a constitutionally mandated institution, pointing to the Postal Clause in Article 1, Section 8, but privatization supporters believe Congress was only given an option to establish the Post Office.

Add to the fray all the various interest groups tied to the Postal Service, from unions to local politicians.

Also, some people don’t have electronic communications devices and live in rural locations that only the Postal Service serves. Would there be a legal obligation to provide access to mail that would include government communications, like tax information or social security payments, as well as everyday mail?

And imagine the post office’s fate as argued as a Supreme Court case. The Postal Clause is one of the few enumerated powers in the Constitution. As seen in the recent health care decision, there are a lot of creative lawyers and academics who would certainly like a part of what could be an historic decision.

For now, the Postal Service doesn’t seem to be going anywhere, but there are huge questions about its role with Congress and how it can operate as a self-sustaining business.

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Third California City Files for Bankruptcy

Story first reported from CNN.com


A California city filed for bankruptcy Wednesday, the third in the Golden State to do so in recent weeks, stoking experts' concerns that other cities could follow suit.

The city of San Bernardino, with more than 200,000 residents on the eastern tip of greater Los Angeles, "filed an emergency petition for Chapter 9 Bankruptcy" with a regional U.S. bankruptcy court, according to a news release from the city's interim manager.

The other two to file recently were Stockton, with around 300,000 residents, according to 2010 U.S. census data, and Mammoth Lakes, a resort town, where visitors and seasonal residents outnumber the just over 8,000 permanent inhabitants.


Many municipalities in the Golden State and around the nation are struggling to cover their costs as the economic malaise continues to hurt tax revenue streams, experts said. This will lead to more municipal bankruptcies, which have been rare until now.

"This is not the end. This is the beginning," Peter Navarro, business professor at University of California, Irvine, told CNN recently. "As cities see it can be done and is being done, it will give them the idea to do it."

Eric Hoffman, an analyst at Moody's Investor Service agreed, saying more city bankruptcies are likely in California and throughout the nation.

Cities have also struggled from budget changes made on the state level. Because of massive budget shortfalls, Gov. Jerry Brown and the state legislature made changes to vehicle tax money and redevelopment agencies that stripped locales of hundreds of millions in state funding.

San Bernardino said it will continue to provide services during the bankruptcy phase.

"There will be no immediate service reductions or changes in service to the community as a result of the filing," interim city manager Andrea Travis-Miller said Wednesday. But "reductions may occur" in the future.

In a prior statement Travis-Miller hinted the city may continue to "negotiate in good faith with its creditors."

In early July, Miller and finance director Jason Simpson issued a report stating that the city was facing insolvency and its expenditures were projected to exceed revenues by $45 million. The city's general fund reserves had been as high as $19 million in 2001 but are now depleted, the report said.
"The city has reached a breaking point," the report said.

Some $10 million to $16 million in annual revenue has evaporated in recent years as taxable sales dried up and property values plummeted in the city, the report said.

Mammoth Lakes sought protection July 2 after a property developer won a $43 million court judgment against the resort town. Experts say this filing should not be lumped in with the other two California municipal bankruptcies since it was an unusual circumstance.

Stockton, however, filed for bankruptcy in late June after three months of mediation when creditors failed to close a $26 million budget shortfall. The city had already addressed $90 million in deficits over the past three years, mainly through reducing services and employee compensation.


Both Stockton's and San Bernardino's fiscal troubles are due in large part to the massive housing downturn and recession that swept across California. Both towns were hit particularly hard by the foreclosure crisis, which left numerous abandoned homes and reduced property values in its wake. That led to lower property tax revenues, critical to supporting public services.

While some areas of the Golden State are starting to recover, the regions containing those two towns are not, said Chris McKenna, executive director of the League of California Cities.

By filing for bankruptcy, cities will be able to keep police and firefighters on the street and possibly keep some parks and libraries open while they work out their finances, he said.

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Birmingham Hurt by Bankruptcy

Story first appeared in the Bloomberg News

Birmingham, Alabama, the most prominent industrial center in the Southeast before the civil- rights era, has been on a long losing streak that just got longer.

In 1997, Daimler AG opened a Mercedes-Benz factory in Vance, one county west of the state’s biggest city. Honda Motor Co. put a plant to the east, Toyota Motor Corp. to the north and Hyundai Motor Co. to the south. Birmingham lost its minor-league baseball team to a suburb in 1987, and the Iron Bowl football game in 2000. Plans for an entertainment district foundered. The city’s population plummeted almost 13 percent since 2000, even as the state grew.

Birmingham is also the seat of Jefferson County, which filed the biggest municipal bankruptcy in U.S. history under the burden of more than $3 billion of sewer-system debt. The so- called Magic City may need a big trick to persuade residents and businesses that its days of losing are over.

Birmingham was once a manufacturing center whose steel furnaces lit the night sky. A 56-foot statue of Vulcan, the Roman god of the forge, looks down on the city from a 124-foot pedestal that rises from Red Mountain, where he holds aloft the tip of a newly hammered spear.

Dynamite Hill

In 1960s, the city became infamous when violence against civil-rights demonstrators made it synonymous with brutal racism. One neighborhood suffered so many attacks with explosives it was called Dynamite Hill, and the city earned the epithet “Bombingham.”

Over the ensuing years, its steel-making industry withered and its housing and infrastructure decayed. In 2010, the city had a population of 212,237, down 12.8 percent since 2000, according to the U.S. Census Bureau. Jefferson County, which encompasses 33 municipalities, had 658,460 people.

The slide to bankruptcy began in 1996, when the county was forced to rebuild its sewer system after pollution was found spewing into rivers. Risky derivative financing for the project backfired beginning in early 2008, leading the county to become one of the biggest casualties of Wall Street’s credit crisis.

Birmingham’s mayor said he knows he must pull his city out of Jefferson County’s shadow.

That’s Not Us

Mayor William Bell, a former county commissioner who took office in January 2010, told reporters  that they are a separate entity.  He added that Birmingham’s financial status is very sound, and they have more than enough money to carry out our day-to- day operations.

Birmingham, with 4,160 employees and a $371 million general-fund budget for 2011, carries Moody’s Investors Service’s third-highest bond rating at Aa2.

Jefferson County’s bonds are rated 14 levels lower: Caa1, below investment grade.

The county’s revenue in the fiscal year that ended in September totaled $152.5 million, down from $207.2 million the previous year. 

The county has cut about 450 positions since June to bring the workforce to 2,687 employees. More cuts are coming next month, Commission President David Carrington has said.

Mayor Bell said he’ll meet with heads of businesses beginning next week to clarify the city’s financial standing and to distance it from the bankrupt county.

Soldiering On

Birmingham’s companies have struggled along with the region. City- based firms compose almost 90 percent of the Bloomberg Economic Evaluation of States’ Alabama stock index based on market capitalization. So far this year, the index has fallen about 24 percent, compared with about 1 percent for the Standard & Poor’s 500.

Brian Hilson, president and chief executive officer of the Birmingham Business Alliance, which serves a seven-county area, said he’s concerned that employers may be deterred from moving to or expanding in the city.

The mayor isn’t giving up. While there is talk among city leaders that sewer-rate increases might drive business away, Bell said a company he couldn’t name promised 250 jobs by year’s end.

Higher Borrowing

Any higher borrowing costs resulting from the county’s fiscal crisis won’t deter plans for revenue-generating projects such as a new hotel, Bell said. The city is spending almost $60 million to build a stadium and create other enticements to lure back the minor-league team, the Birmingham Barons.

Residents are torn as to what bankruptcy will mean.

Scott Pierce, who came to Birmingham more than 20 years ago to attend college and never left, runs a website called WhyBHM.com where he posts testimonials of residents explaining why they’ve moved here. 

Pierce doesn’t anticipate a shortage of stories.

Hilson of the Business Alliance said the city, which has weathered so much, will outlast this storm.

DODGERS IN BANKRUPTCY

The Los Angeles Dodgers filed for bankruptcy protection on Monday, blaming Major League Baseball for rejecting a television deal that would have given the storied baseball team an urgent injection of cash.
The filing marks a dramatic attempt by Dodgers owner Frank McCourt, who is embroiled in a bitter divorce from his ex-wife, to prevent the league and MLB Commissioner Bud Selig from seizing the team, which McCourt bought in 2004.
In a court filing, the team said it had been on the verge of running out of cash but that the Chapter 11 filing will allow it to meet payroll, sign players, pay vendors and continue playing baseball.
It is becoming rather clear and likely inevitable that Frank McCourt will end up selling part or all of the franchise. The back-and-forth between him and Major League Baseball leaves them where they won't be able to coexist much longer.
Selig responded to the bankruptcy filing with a statement blaming the Dodgers' financial woes on McCourt's excessive debt and his diversion of club assets to address personal needs. He said his goal from the outset has been to ensure that the Dodgers are being operated properly now and will be guided appropriately in the future for their millions of fans. He feels the ideas and proposals that he has been asked to consider have not been consistent with the best interests of Baseball.
On June 20, the league vetoed the Dodgers' proposed $3 billion, 17-year television contract with News Corp's Fox Broadcasting Co, saying it ran contrary to the best interests of the team, the game and fans.
The deal promised an upfront payment to the Dodgers of $385 million, but Selig has criticized the proposed use of part of that money to fund McCourt's divorce.
McCourt has said the payment was crucial to the team's health. According to a court filing, the Dodgers need to pay or set aside more than $28 million for payroll by July 1.
McCourt said that they brought the commissioner a media rights deal that would have solved the cash flow challenge that he presented to him a year ago. McCourt feels that Selig has turned his back on the Dodgers, treated them differently, and forced them to the point they find themselves in today.
Forbes magazine in March ranked the Dodgers as baseball's third-most valuable team, worth $800 million. That is more than twice what McCourt paid, and trails only the New York Yankees and Boston Red Sox, it said.
Monday's filing punctuates a stunning fall for one of baseball's marquee teams, whose roots date to 1884 when it played in New York as the Brooklyn Atlantics.
The team became the Dodgers permanently in 1932, and broke Major League Baseball's racial barrier when Jackie Robinson began playing in 1947. It began playing in Los Angeles in 1958 and has called Dodger Stadium home since 1962.
This year, the team has a 35-44 record and has seen home attendance decline sharply. The Dodgers have won six World Series championships, but none since 1988.
Selig took over day-to-day control of the Dodgers in April amid worries about team finances, and security concerns that followed a brutal Opening Day beating of San Francisco Giants fan Bryan Stow in the Dodger Stadium parking lot.
Monday's filing comes less than a year after the Texas Rangers baseball team emerged from bankruptcy, owned by a group that includes Hall of Fame pitcher Nolan Ryan.
Another marquee franchise, the New York Mets, is also overloaded with debt, and its owners, face a $1 billion lawsuit by the trustee seeking money for victims of Bernard Madoff's Ponzi scheme.
The owners are in talks to sell part of that team to hedge fund manager David Einhorn for $200 million.
Other teams to file for bankruptcy in recent years include the Buffalo Sabres and Phoenix Coyotes of the National Hockey League.
The Dodgers arranged a $150 million, one-year financing from lenders so the team can operate normally while in bankruptcy. The variable interest rate on the loan would be at least 10 percent, and the team could draw $60 million immediately and $90 million later.
The Dodgers' filing in the U.S. bankruptcy court in Delaware shows between $500 million and $1 billion of assets and between $100 million and $500 million of liabilities.
Four other related entities also filed for protection from creditors, including one that owns Dodger Stadium.
The Dodgers said the team's largest unsecured creditors include former outfielders Manny Ramirez and Andruw Jones, who are owed $21 million and $11.1 million, respectively.
Ramirez retired in April rather than accept a 100-game suspension for violating baseball's drug policy, after serving a 50-game suspension in 2009. Jones plays for the New York Yankees.
Los Angeles Superior Court Judge Scott Gordon scheduled a one-day trial in August to decide whether the Dodgers belong to Frank McCourt, or whether the McCourts should split the team.
The McCourts' lawyers on June 17 said the pair had resolved all issues in their divorce except for the Dodgers' ownership.
The Dodgers have historically been one of the greatest brands in sports. Buyers may view this as a chance to buy in with the knowledge they can rehabilitate the brand, rebuild the fan base, and add to its value over time.

Auto Bailout's Hidden Danger

As posted by: Wall Street Journal

The key to any magic trick is to focus the audience's attention away from where the action is actually taking place.

That is what Congress did in the failed auto bailout bill. Language in the proposed legislation seemed to uphold the rights of existing car-company creditors while also protecting any taxpayer funds used to prop up Detroit. In reality, the bill raised a chilling prospect for debt investors: that in extreme situations the government could upend the traditional pecking order of the bankruptcy process.

The result could be further instability in credit markets, which the government has been trying to thaw for more than a year. "If someone is thinking of providing a secured loan to another company, they can't ignore this development," said Mark Brodsky, head of Aurelius Capital, which focuses on distressed investments. "It introduces a tremendous amount of uncertainty."

Creditors' rights became an issue in the proposed automotive bailout because the government planned to put its money first in line for repayment in the event of bankruptcy. That seems like a no-brainer for taxpayers. They clearly wouldn't want to shoulder losses before banks. But such a move could contravene the way corporate debt structures work and possibly the U.S. Constitution since senior lenders have their debt secured against company assets.

In response to opposition from the banks, legislators compromised in the bailout bill originally passed by the House of Representatives, but which appears to have died in the Senate. The new language ostensibly made any government loan subordinate to senior, secured lenders.

Problem solved? Not quite. What the government gave with one hand, it took with the other. It also added in some extraordinary protections for any government loans.

These included a provision that, in the case of bankruptcy, the government would be exempt from a legal stay, which freezes creditor claims until the court divides up the assets. It also included language saying the government's loans couldn't be haircut, as often happens to debts in bankruptcy.

These protections mean that in any bankruptcy, the government "would have a strong blocking position that is going to make them the dominant player," said Randy Picker, a professor at the University of Chicago Law School. The exemption from a stay in bankruptcy is especially significant, he adds, because it would let the government seize assets when everyone else has to stand put.

In effect, the language creates a new kind of debt and subordinates the senior, secured holders. That is a possible outcome debt investors now have to keep in mind when investing in industries the government may ultimately have to prop up.

The financial crisis already has shaken the confidence of debt investors in everything from ratings to asset values on bank balance sheets. If the government wants to get markets working again, the last thing it needs to do is give these already skittish investors yet another reason to worry.

General Growth Properties Switches Its Bankruptcy Counsel

As posted by: Wall Street Journal

Debt-laden mall owner General Growth Properties Inc. has changed bankruptcy counsel, parting with Sidley Austin LLP to hire Weil, Gotshal & Manges LLP, according to people familiar with the matter.

General Growth, which owns and manages more than 200 U.S. malls, is struggling to restructure or postpone payment on $27 billion in debt as large installments of it come due in the coming months. The Chicago company hasn't filed for bankruptcy protection but has warned that it might need to do so if it can't sell assets or win agreement on deadline extensions with its lenders.

Weil Gotshal has worked on notable bankruptcy cases including those of Lehman Brothers Holdings Inc., Bethlehem Steel Corp. and Marvel Entertainment Group. The firm recently was hired to advise General Motors Corp. and Extended Stay Hotels Inc., neither of which has sought bankruptcy protection.

A General Growth representative confirmed the hiring but declined to comment further. Representatives of Weil Gotshal and Sidley Austin didn't respond to requests for comment.

General Growth is hiring another firm, Kirkland & Ellis LLP, as bankruptcy counsel for some of its subsidiaries, people familiar with the matter said. Kirkland partner James Sprayregen, who recently returned to the firm from Goldman Sachs Group Inc., has a long history of working with General Growth. Goldman, along with Morgan Stanley and Deutsche Bank AG, are working as advisers for General Growth. GPP has no money for Lawn Care.

Meantime, holders of some of the $600 million in General Growth bonds coming due in March and April have hired Paul, Weiss, Rifkind, Wharton & Garrison LLP to assist them in negotiations with the company. A Paul Weiss representative didn't return messages seeking comment.

General Growth is the second-largest U.S. mall owner by number of properties, after Simon Property Group Inc. Among General Growth's prominent holdings are Ala Moana Center in Honolulu, Water Tower Place in Chicago and Faneuil Hall in Boston.

Tribune Co. Taps Lazard,Weighs Filing for Chapter 11

Tribune Co. is preparing for a possible filing for bankruptcy-court protection as soon as this week, according to people familiar with the matter, in a sign of worsening trouble for the newspaper industry.

In recent days, as Chicago-based Tribune continued talks with lenders to restructure its debt, the newspaper-and-television concern hired investment bank Lazard Ltd. as its financial adviser and law firm Sidley Austin to advise the company on a possible trip through Chapter 11 bankruptcy, people familiar with the matter say.

A Tribune spokesman said the company doesn't comment on rumors or speculation. Tribune owns eight major daily newspapers, including the Los Angeles Times, Chicago Tribune and Baltimore Sun, plus a string of local TV stations.

A spokeswoman for Lazard didn't respond to requests for comment. Representatives of Sidley Austin couldn't be reached for comment.

Tribune's latest actions underscore the deepening distress enveloping Tribune and other newspaper publishers. Their businesses are being battered by dwindling advertising sales, and many are carrying debt loads that are unmanageable in current market conditions. Industry insiders expect some papers will need to fold in coming months or seek protection from creditors to reorganize.

Tribune has been on wobbly footing since last December, when real-estate mogul Samuel Zell led a debt-backed deal to take the company private. Tribune has stayed ahead of its $12 billion in borrowings with the help of asset sales. Now, however, shrinking profits are tightening the noose.

The company's cash flow may not be enough to cover nearly $1 billion in interest payments due this year, and Tribune owes a $512 million debt payment in June.

One of Tribune's most pressing concerns: The company is likely to be in violation of debt terms that limit borrowings at the end of the year to nine times its adjusted profits. The ratio stood at 8.3 at the end of the second quarter, before Tribune reported an 83% decline in operating profit for the three months ended Sept 28.

Violations of such debt covenants have become commonplace for newspaper companies as their profits have ebbed. Lenders so far have been willing to give the companies a pass in exchange for higher interest rates and other concessions, but Tribune has little wiggle room. Terms of the company's debt already are so loose and its financial standing so unsteady that a covenant waiver may not help.

To be sure, a restructuring outside of bankruptcy court remains an option for Tribune. Executives have indicated that its talks with lenders are amicable, and it remains possible the two sides can agree to rework the company's borrowings on their own, as other newspaper publishers are doing.

Tribune's hiring of Lazard, meanwhile, brings it a firm experienced in debt restructuring, and one that has become a go-to adviser for newspaper companies in financial distress.

Even as its financial performance worsens, Tribune has some options. A sale of its Chicago Cubs baseball team is under way, and Tribune owns valuable stakes in businesses including the cable-TV channel Food Network.

Tribune already has auctioned off pieces of the company, including the Long Island, N.Y., daily Newsday to raise cash. Now, frozen credit markets have depressed sale prices.

Selling off more newspapers may not be a viable alternative because buyers are scarce and Tribune may be better off holding onto the profits from its papers.

Pilgrim's Pride Seeks Chapter 11 Protection

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.