MorrisAnderson Assist Lenders Complete Favorable Sale Without Bankruptcy

Agribusiness & FoodLitigation SupportTurnarounds & Restructuring

600M

Annual Sales

130M

in Debt

O.K. Industries, Fort Smith Arkansas

Challenge

Vertically integrated poultry producer and processor – $600 million in annual sales and 2.5 million chickens processed weekly. Engaged as financial advisor to lender group consisting of 10 lenders. $130 million debt. Cash flow losses huge as corn feed costs had doubled and chicken prices were down due to industry over-capacity-lender group had funded $20 million more to bridge to a sale. Plan was to sell company but given terrible industry condition only one foreign strategic buyer was interested.

  • Industry adversely impacted by several years of increasing corn and soybean meal costs combined with reduced chicken pricing due to excess industry capacity caused significant operating and cash losses of over $1 million per week.
  • Competitor bankruptcies were frequent over previous several years.
  • Total debt $130 million with value of business less than the debt. Lenders were the only financing source available. Very difficult to shut down operations quickly due to millions of live chickens requiring daily feeding.
  • Limited alternatives for lender group to exit – Chapter 11 costs would reduce going concern recovery by $20 million or more and liquidation would be very risky.
  • Negotiations with the “only” buyer had been stalled over issue of how much the lender group would accept as a pay off on their loan.

Solution

  • Developed analysis of recovery alternatives – out-of-court sale/Chapter 11 363 sale/orderly liquidation and advised lenders regarding best recovery.
  • Monitored cash management, check float, and overdraft on a daily basis and identified opportunities to conserve liquidity and minimize cash burn, and advised bank group regarding necessary funding needs.
  • Monitored raw materials supply to ensure there were no adverse disruptions to the business during the sale process.
  • Worked with counsel to develop a pay off amount acceptable to the lenders that ultimately unlocked the negotiations with the seller.

Results

  • Sale of business within 5 weeks of MorrisAnderson’s involvement at a recovery value at least $20 million better than any alternative scenarios.
  • Reduced lender funding by $3 million of previous cash funding which further improved loan recovery.
  • Contributed to the preservation of over 3,000 jobs in two rural communities.

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