February 16, 2009

A bankruptcy judge said Pilgrim's Pride Corporation, one of the country's largest poultry producers, can sell its stake in a grain-elevator business to joint-venture partner Archer Daniels Midland Co.

 

Judge D. Michael Lynn signed off on the sale at a Tuesday hearing, according to papers filed in US Bankruptcy Court in Fort Worth, Texas.

 

Pilgrim's Pride, which filed for Chapter 11 protection late last year, sold its interest in the grain-elevator business for US$5 million.

 

The company had been trying to sell its interest in the joint venture for some time, and it's now seeking to reorganize its business in the face of a worldwide chicken glut.

 

Pilgrim's Pride opted to sell its stake to ADM, which had a right of refusal to any deal, after the business drew a single offer from a grain vendor. That deal would have netted Pilgrim's Pride less than a sale to ADM, the company said.

 

Pilgrim's Pride, based in Pittsburgh, Texas, filed for bankruptcy in December 2008 as it struggled to weather a liquidity crunch resulting from soaring prices for corn and soy used in chicken feed during the first half of the year. Feed costs later crashed, but the company said it was locked into over-valued futures contracts.

 

Squeezed by high costs and falling chicken prices as demand slowed, Pilgrim's Pride attempted to work out better terms from lenders, and it pursued additional investors.

 

Those efforts were unsuccessful, however. In early November, Pilgrim's Pride said it would skip a US$25.7 million interest payment.

 

On December 1, 2008, the company filed for Chapter 11, listing US$3.75 billion of assets and US$2.72 billion of liabilities. The same month, Pilgrim's Pride said Chief Executive Clint Rivers had resigned and would be replaced by former Foster Farms executive Don Jackson, who'll lead the company during its reorganization.

 

Separately, the company has been wrangling with the US trustee, the federal monitor overseeing the bankruptcy case, concerning a consulting deal the company has with Rivers and another former executive.

 

Pilgrim's Pride wants to pay the two former executives some US$490,000 for "consulting services" over the next several months.

 

But in court testimony, William Snyder, Pilgrim's Pride chief restructuring officer, said Rivers' and former operations chief Robert Wright's consultations were limited to answering questions "such as where a file was," according to court papers filed by the trustee on Thursday.

 

The trustee says the US$490,000 is really a "non-compete" payment, which shouldn't be allowed under bankruptcy law. Lynn, the bankruptcy judge, held a hearing on consulting deals last week but hasn't issued a decision on the issue.