Pilgrim's Pride files for bankruptcy protection

MILWAUKEE - Pilgrim’s Pride Corp., the nation’s largest chicken producer, filed for Chapter 11 bankruptcy protection on Monday, hobbled by its debt load and volatile feed prices.

The Pittsburg, Texas-based company sought bankruptcy protection in a filing with the U.S. Bankruptcy Court for the Northern District of Texas on Monday, saying that as of Sept. 27 it had $3.75 billion in assets and $2.72 billion in debts.

Pilgrim’s Pride spokesman Ray Atkinson said the company was reorganizing and not liquidating its assets, and that it will keep operating throughout the reorganization process.

The chicken producer has been saddled by the debt from its $1.3 billion acquisition of rival Gold Kist Inc. in 2007 — what analysts cite as the primary cause of its large debt load.

Pilgrim’s Pride’s financial problems have been known for months, since it said in late September it would post a “significant loss” in the fourth quarter, citing woes from hedging of feed inputs like corn. It has had to extend its temporary credit line three times since September — most recently as last week. Its third extension was set to expire Monday afternoon.

Last month, in accordance with rules set by its lenders, the company hired a chief restructuring officer, and has maintained since its credit issues surfaced in September that it wanted to avoid filing for bankruptcy.

After the market closed Friday, the poultry producer said in a filing with the Securities and Exchange Commission that it would delay filing its 2008 annual financial report, which had been due Nov. 26. It expects to post a loss of $802 million, or $10.83 per share, on sales of $2.17 billion for the fourth quarter, which ended Sept. 27. Those results include a non-cash charge of $501.4 million, or $6.77 a share due to the impairment of goodwill related to its acquisition of Gold Kist, and an income tax valuation allowance of $35 million, or 47 cents a share, against net operating losses.

The nation’s meat makers, especially Pilgrim’s Pride, are hurting as their profits shrink in the wake of high commodity prices for key inputs like corn and oil. Those prices are moderating after reaching record highs this summer, but they are still high for producers. Further hurting the industry is a drop in demand in foodservice, since cash-strapped consumers are cutting back on their restaurant spending, and an oversupply of meat on the market. Both of those factors are keeping prices down and making it more difficult for meat makers to recoup their high input costs.

Producers like Pilgrim’s Pride have pledged or started to cut production, to remove supply and push prices back up. But others, like No. 2 chicken player Tyson Foods Inc. have not. Last month, the Springdale, Ark.-based company, which also makes beef and pork, said it increased its chicken volume 6 percent in the latest quarter. Some analysts said that it was trying to make a permanent cut — such as forcing the bankruptcy of Pilgrim’s Pride — by holding off on its own production pullbacks.

Pilgrim’s Pride controls about 23 percent of the U.S. market, and is a large chicken producer in Mexico. It has 48,000 employees and operates 35 chicken processing plants and 11 prepared-foods facilities.

The company said in its statement that the bankruptcy protection it is seeking does not include operations in Mexico or certain ones in the U.S., though it did not specify which ones. The protection does include six subsidiaries, including PPC Marketing Ltd., PPPC Transportation Co., To-Ricos Distribution Ltd. and PFS Distribution Co.

Pilgrim’s Pride also said in a statement that it is seeking approval to enter into a $450 million debtor-in-possession financing agreement arranged by Bank of Montreal. The company said if the financing is approved by the court, the money will help it run its daily operations, including paying wages and other obligations.

The company said it has asked the court for additional authorizations so it can continue to pay salaries, provide benefits and work with its customers.

“We expect to emerge from this restructuring a stronger, more competitive company that is well-positioned for growth and enhanced profitability,” Clint Rivers, Pilgrim’s Pride’s president and chief executive said in a statement.

Shares of Pilgrim’s Pride fell 52.6 cents, or 46 percent, to 62.4 cents before trading was halted on Monday. The company’s stock has nearly eroded from its 52-week high of $29.59.

Stephens Inc. analyst Farha Aslam wrote in a research note early Monday that she believes the company needs about $250 million to $300 million “in order to make it to the other side of the chicken cycle” — once pricing is restored, costs level off and supply issues are dealt with. She noted that Pilgrim’s Pride has a $25.7 million interest payment due on Wednesday.

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