Del Monte Foods files for bankruptcy
The loss-making American unit of food giant Del Monte Pacific Ltd. (DMPL) has put assets up for sale and sought bankruptcy court protection as part of a rehabilitation program drawn up with creditors.
Del Monte Foods Corp. II Inc. – the company that produces the brands Del Monte, Contadina, College Inn, Kitchen Basics, JOYBA, Take Root Organics and S&W in the United States – entered into a restructuring support agreement with a group of lenders and initiated voluntary Chapter 11 proceedings at the New Jersey bankruptcy court.
The US company struck a deal with creditors that, among others, requires the unloading of ”all or substantially all” of its company’s assets. The goal is to monetize these assets at the highest value for all stakeholders.
“This is a strategic step forward for Del Monte Foods. After a thorough evaluation of all available options, we determined a court-supervised sale process is the most effective way to accelerate our turnaround and create a stronger and enduring Del Monte Foods,” said Greg Longstreet, president and CEO of Del Monte Foods.
“With an improved capital structure, enhanced financial position and new ownership, we will be better positioned for long-term success,” he added.
The DMPL board, for its part, had earlier pulled the plug on its US subsidiary. As a result, the lenders gained majority control of the board of Del Monte Foods and its subsidiaries. A 25-percent stake in the company had been transferred to the lenders.
Moving forward, to support the strategic transactions and fund its ongoing operations subject to court approval, Del Monte Foods obtained a commitment for $912.5 million in debtor-in-possession (DIP) financing, inclusive of $165 million in new funding, from certain of its existing lenders.
This financing, along with cash from ongoing operations, is seen to provide sufficient liquidity during the sale process and fund ongoing operations.
DIP financing allows companies in bankruptcy proceedings to get new money to continue the normal course of business. Such loans, which are prioritized over existing debt, equity and other claims, are meant to help the debt-strapped company to revitalize operations and eventually settle debt.
“While we have faced challenges intensified by a dynamic macroeconomic environment, Del Monte Foods has nourished families for nearly 140 years, and we remain committed to our mission of expanding access to nutritious, great-tasting food for all,” Longstreet added.
In a separate disclosure to the Philippine Stock Exchange, DMPL noted, “This court-supervised process enables the debtor to formulate a process to address the company’s existing liabilities and related obligations, during which creditor debt collection efforts are generally halted by the imposition of a moratorium during the pendency of the proceedings.”
With the dilution of its interest, DMPL is now in the process of assessing the financial impact that its deconsolidation of Del Monte Foods might have on the group.
Its net investment value in the US company was $579 million as of end-January this year. In addition, DMPL and its affiliates have a net receivable of $169 million.
