Pilgrim's Pride Files Chapter 11: Not a Bailout in Sight

| About: Pilgrim's Pride (PPC)
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We've been following the saga of Pilgrim's Pride (NYSE:PPC) for completely different reasons (at the time food inflation and the cost of grains on meat producers) [Mar 12: Pilgrims Pride Cutting Chicken Output], but earlier this week the company filed for Chapter 11 Protection (i.e. bankruptcy). This is not a surprise considering how things were going. [Oct 28: Pilgrim's Pride is now a $1 Stock] [Sep 25: Cash is King: Pilgrim's Pride Down 40%] The perfect storm has finally caught up with the company (higher grain prices, pooring Americans, high debt load) and the country's largest chicken producer is not connected enough with those that matter to get a bailout. Snap a finger if you are a financial company, but if you actually produce tangible things - nada. The boondoggle that is corn ethanol assisted in snagging another victim.

  • Pilgrim's Pride Corp. filed for protection from creditors under Chapter 11 of the federal Bankruptcy Code on Monday after heavy debt and low chicken prices put one of the world's largest chicken companies (largest in the US) in a squeeze. In its filing with the U.S. Bankruptcy Court for the Northern District of Texas, Pilgrim's Pride listed $3.75 billion of assets and $2.72 billion of liabilities.
  • The Pittsburg, Texas, company said it plans to operate normally at its 35 chicken-processing plants and 11 prepared-foods facilities as it reorganizes.
  • It has lined up $450 million of debtor-in-possession financing led by Bank of Montreal to pay wages and other obligations. Its largest unsecured creditors include agribusiness giant Cargill Inc., which it owes $1.5 million, and San Francisco bank Wells Fargo & Co., which it owes $25.7 million.
  • In theory, the filing could help the struggling chicken industry rebound after being pinched by high prices for the corn and soybeans used in chicken feed and low retail prices for chicken meat. Companies have been unable to raise chicken prices enough to offset these costs because a slowing economy has had consumers buying less.
  • Pilgrim's tried to protect itself from even higher feed grain prices by buying grain in advance of use, a practice called hedging. Unfortunately, that hedging occurred right before grain prices tumbled, which left Pilgrim's with a lot of expensive feed.
  • Analysts hope that bankruptcy protection will make it easier for Pilgrim's Pride to rid itself of excess production capacity, a move that could help lift chicken prices by reducing supply. But Meaghan Repko, a spokeswoman for Pilgrim's Pride, said the company has no plans to cut its capacity.
  • The troubles at Pilgrim's Pride started two years ago, when the company paid $1.1 billion to buy rival Gold Kist Inc. and gained control of 26% of the nation's bird-slaughtering capacity, pulling ahead of Tyson Foods. The deal saddled Pilgrim's Pride with a debt load that became more difficult to manage as credit dried up, feed prices rose and a glut formed in the poultry market.
  • Pilgrim's Pride reached out to dozens of hedge funds and private-equity funds in recent weeks for rescue financing, but found little interest in providing new money for the company, said two people familiar with the matter. Some hedge funds told Pilgrim's Pride they needed to maintain liquidity to repay their own investors by the end of the year. (we can't help you - we're having a hard enough time to save ourselves!)

So let's review - if you take risk, take on debt, and get caught by the perfect storm in poultry production, you can fail. If you do it in the banking system there is a 95% chance all of Washington's power will come to your rescue, funnel money into you left and right, and your executives get big payouts to boot. Sounds equitable.