December 2, 2008

Pilgrim's Pride files for bankruptcy protection

US chicken producer Pilgrim's Pride on Monday (Dec 1, 2008) filed for bankruptcy protection to address certain short-term operational and liquidity challenges.


The company's operations are expected to continue as normal throughout the bankruptcy process while it develops a reorganisation plan to resolve its temporary operational and liquidity issues. Operations in Mexico and certain operations in the US were not included in the filing and will continue to operate outside of the Chapter 11 process.


Pilgrim's Pride is saddled by debt due to its US$1.3 billion acquisition for rival company Gold Kist Inc., and had to extend its temporary credit line three times since September.


Pilgrim's Pride has also suffered from volatile feed prices and an oversupply of meat on the market, which keeps prices low.


Aside from the filing, the company is also seeking approval to enter into a US$450 million debtor-in-possession financing facility arranged by Bank of Montreal as lead agent (the "DIP Financing"). If approved by the Court, the DIP Financing will provide an immediate source of funds to the company, enabling it to satisfy the customary obligations associated with the daily operation of its business.
Under chapter 11, in most instances the debtor remains in control of its business operations as a "debtor in possession". The court can grant complete or partial relief from most of the company's debts and its contracts. Sometimes, if the business's debts exceed its assets, then at the completion of bankruptcy the company's owners all end up without anything; all their rights and interests are ended and the company's creditors are left with ownership of the newly reorganized company.
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