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As it struggles to keep afloat, Pilgrim’s Pride is quietly trying to boost liquidity by pursuing non-core asset sales. The ailing poultry packer believes that strategy is crucial to brokering a deal with lenders of the credit facility it breached covenants on in September, said two bond holders and a buysider.
Pilgrim’s started the sales process earlier this year by putting its Mexican division on the block, but assets up for grabs now include North Carolina and Arkansas plants, the same sources said. Sanderson Farms is rumored to be a particularly interested bidder, said one of the bond holders and the buysider.
If Pilgrim succeeds in monetizing the units quickly, that may reassure lenders that the meat packer can meet its liquidity needs – such as the USD 27m bond coupon payments missed on Monday 3 November, said the second bond holder. Management hopes the cash stockpile would convince lenders to permanently waive the covenant breach, the same bond holder said.
“The company wants to build up enough liquidity so that they can go back to the banks and say they don’t have to borrow under the revolver for the next six months,” the source continued. “At the end of that time, Pilgrim’s hedges will likely run off, lower grain costs will start to flow through and operating results will hopefully be back to the point where lenders still want the company to come into the revolver and borrow.”
Pilgrim’s now has less than one month to go before both the extension on its temporary waiver expires and its grace period to pay interest on its bonds ends. “The company has been trying to buy enough time to get an asset sale done at something other than a fire sale price,” said the second bond holder.
But, at some point management is going to take whatever price it can get, the second bond holder and the buyside source said.
“Sanderson has been looking to do green field development to the extent they can buy a plant that’s in decent shape and they could get it for cents on the dollar,” said the second bond holder. “The company has wanted to increase production capacity, but has been waiting to do it at the right price.”
Officials from Sanderson and Pilgrim’s declined to comment. Sanderson denied in media reports on 9 October that it might make a bid for Pilgrim’s as a whole.
Pilgrim’s Mexican operations are also up for sale, as previously reported by this news service. Bachoco, Mexico’s number-one chicken and egg company, and Tyson have both been named as possible suitors.
On Monday, Pilgrim’s skipped USD 25.72m of interest payments due on its USD 400m 7.625% senior notes due 2015 and USD 250m 8.375% subordinated notes due 2017, Instead the company entered into a 30-day grace period, which expires on 1 December. The company is currently operating under an extended waiver to its 1.25x fixed-charge coverage covenant under its USD 1.2bn credit facility through 26 November.
The senior notes traded yesterday at 30.5, down 19 points from one month ago, while the subs were last seen at 11, down 22 points since 6 October, according to MarketAxess.
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