Farmland files for bankruptcy protection

Farmland Industries, the largest US farmer-owned co-operative, said on Friday that it had filed for bankruptcy protection, unable to meet demands for immediate debt payments amid a slumping farm economy.

The bankruptcy filing came after Smithfield Foods, the largest US pork producer, failed to convince Farmland to accept an offer to buy the co-operative's beef and pork operations. The two companies had discussions on Friday, Farmland said.

Cash-strapped Farmland had been struggling to meet a $10 million loan payment due on Friday on its $500 million credit facility and to bring its books into compliance with cash reserve requirements set by its lenders.

The Kansas City-based co-operative told reporters that it had secured debtor-in-possession financing from a banking group led by Deutsche Bank, to restructure under Chapter 11 bankruptcy protection, but it did not give an amount. Farmland has sought financing of up to $430 million, according to its filing with the US Bankruptcy Court for the Western District of Missouri.

"We fought to pull ourselves through this time of tight liquidity. Regrettably, we were unable to overcome one significant challenge - aggressive early redemption demands from our subordinated debt holders,"​ said Farmland chief executive Robert Terry.

The decision by Farmland to file for bankruptcy could send tremours through the farm economy because the sprawling co-operative has some 1,700 smaller co-operative members who in turn have thousands more farmer owners in the US, Canada and Mexico. Besides meat, Farmland's $12 billion in annual sales come from products ranging from crop fertilisers to petroleum products.

Terry said between 15,000 and 20,000 individuals held interests in the company's subordinated debt programme, and recent publicity of the company's problems had prompted holders of those securities to seek early redemptions totalling more than $30 million.

"I liken it a bit to a run on the bank,"​ Terry said. "It pressed our cash position."​

The combination of the early redemptions and the continued cash crunch in Farmland's fertiliser business forced the company to seek bankruptcy protection, he said.

"Ultimately, we found ourselves where this was the best decision at this time to stabilise the company's finances,"​ Terry added.

Terry said that the bankruptcy filing did not preclude further negotiations with Smithfield, which is based in Smithfield, Virginia, and has been aggressively expanding its operations beyond pork into beef.

"We have indicated and they have indicated there is no reason not to continue discussions,"​ he said. "We are open to that."​

Smithfield said it had offered to help Farmland make its $10 million payment due to its lenders on Friday, and offered to pay "full market value" for the meat businesses, which make up the bulk of Farmland's refrigerated foods division. The unit has annual sales of roughly $4.75 billion.

But Terry said the actual details of an offer were different than those Smithfield publicised. He would not elaborate.

Smithfield issued a statement late on Friday saying it was disappointed Farmland had chosen bankruptcy protection.

"It is very disappointing ... that the co-op's management chose the uncertainty of bankruptcy rather than explore the far more secure and valuable alternative that we proposed,"​ Smithfield said.