Willcox - Eurofresh files Ch. 11

4/21/09 (edited)

By Dan Sorenson
ARIZONA DAILY STAR
Saddled with $300 million in debt, Eurofresh Inc., a hydro­ponic vegetable grower and ma­jor regional employer, filed for Chapter 11 bankruptcy protec­tion Tuesday in Phoenix.

Blaming the filing on its debt burden, labor troubles and crop pest problems, the company said it plans to continue operating af­ter reaching agreement with key creditors to quickly reorganize under bankruptcy protection.

Eurofresh, which grows tomatoes and other vegetables in a 274-acre greenhouse operation near Willcox and a smaller oper­ation in Snowflake, ranked 33rd in the most recent Star 200 sur­vey of Southern Arizona’s major employers, listing 1,600 em­ployees at the end of 2008.

In its initial court filings, the privately held corporation said the bankruptcy filing was part of a plan worked out with key cred­itors to “recapitalize.”

The company revealed that it had defaulted on loans totaling about $70 million in late March and missed a payment on $170 million in other debt in January.

Contributing to the compa­ny’s financial problems, the firm said, were infestations of plant diseases and whiteflies, resulting in millions of dollars worth of crop losses since 2006.

The company also cited labor problems, including a shortage of workers “due to changes in immi­gration policy” and an ongoing in­vestigation of its hiring practices by U.S. Immigration and Customs Enforcement.

Eurofresh said it had reached an agreement with a group of in­vestors, including its founder and chairman, Johan van den Berg, to recapitalize the company, which listed total secured and unsecured debts of about $300 million.

Eurofresh Chief Executive Offi­cer Dwight Ferguson said that un­der the company’s reorganization plan, the firm’s notes — short­term bonds used to raise $170 mil­lion in late 2005 — would be can­celed and exchanged for stock.

Ferguson said the company will continue to “operate profitably and effectively, with minimal dis­ruption to our business.” He said cash flow continues to be positive and that the company, if it’s al­lowed to follow its reorganization plan, will be able to pay the unse­cured debtors — employees, sup­pliers and other providers of goods and services.

“It is absolutely business as usual,” Ferguson said. “The deci­sion to file for Chapter 11 … has absolutely nothing to do with the operations at the company. We’re still cash-flow-positive and prof­itable. We’re like companies everywhere that have been bur­dened by a lot of debt.”

Eurofresh attorneys said they expect to submit the company’s plan for reorganization in mid­May and complete its financial re­organization in the third quarter of this year. Ferguson downplayed factors other than tightening and expensive credit for the compa­ny’s financial plight.

“Credit was available and cheap, up until the last couple years,” he said. “We leveraged up. This is really being driven by those operations. We felt, at that time, we could service that kind of debt level.”

A spokesman for the United Food and Commercial Workers union Local 99 said the company told him of the pending bankrupt­cy reorganization and assured him that there would be no changes for the local’s roughly 500 employees at the Willcox complex or about 100 at the Snowflake operation.

The union crews are working under a three-year contract signed in October, with starting pay around $8 an hour and top­ping out at about $15 an hour, plus fully paid health benefits, said Paul Rubin, secretary-treasurer of UFCW 99.

The company has expanded rapidly in recent years, despite persistent labor shortages.

But despite rising revenues, its court filings showed declining profits from 2006 through 2008 amid mounting debt.

In its bankruptcy filing, the company blamed some of its fi­nancial problems on plant “dis­eases and infestations.” The report itemized the loss of nearly 8 mil­lion pounds of tomatoes valued at just under $8 million, due to plant diseases and whitefly infestations since 2006.

The company emphasized that “the disease and infestation pres­ent no risk to humans.”

However,the company’s sales re­portedly were hurt by the 2008 U.S. salmonella bacteria outbreak that was traced to other producers’ tomatoes. A company spokesman said Eurofresh’s products were grown in sterile conditions, and Eu­rofresh tomatoes were never con­nected to the outbreak.

According to Bankruptcy Court documents filed Tuesday, Eu­rofresh plans to cancel all of its ex­isting stock and the unsecured­debt notes.

In exchange, the company will issue 10 million shares of new common stock and $10 million worth of new preferred stock that will be divvied up among the company’s major shareholder and holders of Eurofresh’s notes.

Major holders of the unsecured notes include New York investment firm Apollo Investment Manage­ment, which holds $76.5 million; Barclays Capital, $47 million; and JP Morgan Asset Management, $35 million.

Notable trade creditors include Southwest Gas Corp., which is owed $822,177; Casa Grande­based Fertizona, a major fertilizer, agricultural chemical and seed re­tailer, $677,570; and Arizona Cor­rectional Industries, a state prison-labor program used by Eu­rofresh, $ 653,597.

Contact reporter Dan Sorenson at 573-4185 or dsorenson@azstarnet.com.