Pilgrim's Pride Corp. files for bankruptcy protection

by Keith Nunes
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PITTSBURG, TEXAS — Facing significant financial challenges related to increased costs and a difficult market, Pilgrim’s Pride Corp., the nation’s largest chicken processor, filed for Chapter 11 bankruptcy protection in the U.S. Bankruptcy Court for the Northern District of Texas on Dec. 1. The company was delisted by the New York Stock Exchange that same day.

"Over the past year, Pilgrim’s Pride has faced a number of significant challenges, including high feed ingredient costs, an oversupply of chicken, weak market pricing and softening demand," said Clint Rivers, president and chief executive officer. "After careful consideration of all available alternatives, the company’s board of directors determined that a Chapter 11 filing was a necessary and prudent step and the best way to obtain the financing necessary to maintain regular operations and allow for successful restructuring. We expect to emerge from thisrestructuring a stronger, more competitive company that is well positioned for growth and enhanced profitability."

The company said operations are expected to continue as normal during the bankruptcy process. Operations in Mexico and certain operations in the United States were not included in the filing.

On Dec. 3, the U.S. Bankruptcy Court for the Northern District of Texas approved "first day" motions to the company, providing interim approval to access $365 million of its $450 million debtor-in-possession (DIP) financing facility arranged by the Bank of Montreal.

"The court’s approval of our DIP financing and first day motions is a positive first step toward a successful restructuring," Mr. Rivers said. "Throughout this process we will continue to operate our business without interruption, including paying employee wages and purchasing the goods and services necessary to serve our customers. We have been working hard to address the operational and financial challenges we currently face, and this restructuring will help us not only meet these challenges but also enhance the efficiency of our operations, strengthen our balance sheet and position Pilgrim’s Pride to compete more effectively in the future."

The final DIP hearing is scheduled for Dec. 17.

A Nov. 28 filing with the U.S. Securities and Exchange Commission underscores the depth of Pilgrim’s Pride’s financial troubles. For the fourth quarter ended Sept. 27, Pilgrim’s Pride is expected to post a loss of $802 million. The loss took into account a charge of $501.4 million related to the acquisition of Gold Kist, Inc.

Not considering the Gold Kist acquisition and an income tax valuation allowance, the company’s net loss would have been $265.6 million.

Sales for the fourth quarter were $2.17 billion.

For the full-year ended Sept. 27, the company anticipated a loss of $998.6 million. Not considering the Gold Kist acquisition and an income tax valuation allowance, the loss for the year would have been $437.2 million. Sales for the year were $8.5 billion.

In addition to the bankruptcy filing, Pilgrim’s Pride also faces at least two lawsuits that have been filed with the U.S. District Court for the Eastern District of Texas seeking class action status to represent the purchasers of Pilgrim’s Pride common stock between May 5 and Sept. 24 of this year. The lawsuits, filed by Coughlin Stoia Geller Rudman & Robbins L.L.P., San Diego, and Izard Nobel L.L.P., Hartford, Conn., both allege some company executives and directors violated federal securities laws by misrepresenting the company’s financial situation.

Specifically, both lawsuits allege Pilgrim’s Pride executives misrepresented the company’s financial situation and concealed the impact of its capital problems related to its business. According to the complaint, defendants were aware the company’s hedges to protect it from adverse changes in costs were not working and were actually harming the company.

Ray Atkinson, director of corporate communications for Pilgrim’s Pride, declined to comment on the lawsuits and said it is the company’s policy to not comment on pending or threatened litigation.

This article can also be found in the digital edition of Food Business News, December 9, 2008, starting on Page 1. Click here to search that archive.

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