Pure Prairie Poultry in Charles City files for Chapter 11 bankruptcy
‘Reorganizational’ bankruptcy seeks to sell the business while it is still running
By Bob Steenson, bsteenson@charlescitypress.com
Pure Prairie Poultry Co. in Charles City announced that is has voluntarily filed for Chapter 11 reorganizational bankruptcy, hoping to find a buyer to purchase the business as a “going concern” to keep it operating.
The company announced Friday, Sept. 20, that it had conducted an in-depth review of its options and determined “the prospects for financial viability as a standalone operation are limited,” and “the current ownership group is unable to make additional investments in the business.”
“Despite aggressive actions to improve the efficiency of the company’s operations, its prospects as a stand-alone business remain substantially in doubt,” the company said.
“We believe there are buyers out there and that the best path forward is to sell the company on a ‘going concern’ basis. This is good for our people, our partners, and our customers,” Pure Prairie Poultry said, adding, “The company has received indications of interest in a going-concern sale and expects to solicit bids and soon reach a preliminary agreement.”
The company issued a statement on Friday that it has filed a voluntary petition in the U.S. Bankruptcy Court for the District of Minnesota for relief under Chapter 11. It said operations will remain ongoing through the process, and it has filed motions to protect employee pay and benefits.
The announcement comes less than two years after Pure Prairie began operations on Nov. 16, 2022, on the site of four previous chicken processing companies that did not remain in business.
Pure Prairie had purchased the assets of the previous company, Simply Essentials, in December 2021 in federal bankruptcy court. Simply Essentials had closed in August 2019.
Pure Prairie Poultry executives have previously said they invested $52 million in upgrades to the facility, with much of that investment coming through federal grants and a federal USDA-guaranteed loan for almost $39 million.
The investments included expanding production capacity, adding a distribution center and building a new front office addition that includes business offices, training facilities and a large team member break area.
Changes also included Charles City rerouting the intersection of North Main Street and North Grand Avenue and leasing part of the land to Pure Prairie with an option to buy, to make room for the additions and vehicle access.
Pure Prairie management said those additions were necessary to bring the facility up to a state where it could be profitable. Ribbon-cutting marking the expansion project’s substantial completion was held in July this year.
According to court documents, Pure Prairie Poultry’s total secured debt is listed as $66.88 million, and total assets including real estate, machinery and equipment are listed as $47.63 million, for a “creditor deficit” of $19.24 million.
As part of Pure Prairie Poultry’s filings Friday in court, George Peichel, the company’s chief financial officer, provides a narrative of what has happened to the company over the past two years, as well as explanations for many first-day motions that the company has also filed for expedited rulings allowing it to continue operating.
Peichel said that Pure Prairie’s activities in the first year it owned the facility “focused in substantial part on refurbishing and re-outfitting the Plant so it could once again become operational.”
“From its inception, the company has been driven by the desire to become a key participant in the ‘Premium & Organic’ tier of the poultry-production industry – the industry’s top tier,” he wrote.
However, it faced a number of challenges in starting up, including supply-chain issues carrying over from the COVID-19 pandemic, delayed loan proceeds and a drop in poultry prices.
“Weathering the delays between the acquisition of the plant in 2021 and completing construction of second processing in November 2023 came at a substantial cost,” he wrote, adding, “The company endured approximately $38 million in operating losses from November 2023 to the present.”
Peichel also outlines a long list of funding mechanisms the company has had to rely on to continue operations, including shareholder loans, lines of credit, business loans and several instances where it sold a portion of expected future revenues to raise immediate cash.
Included among the unsecured creditors is the city of Charles City, which is owed more than $500,000, including for utility payments owed.
“First day” motions filed along with the Chapter 11 petition on Friday include asking Judge Katherine A. Constantine to approve allowing the company to honor obligations to critical vendors, such as the 50 or so growers who provide the live chickens to the plant.
“Debtor has an urgent and immediate need to use cash in order to, among other things operate its business, fund payroll, make lease payments, pay utilities and pay other critical and ordinary course vendors,” Peichel wrote.
The documents state that there are currently 138 full-time employees at the plant, plus 123 part-time and/or temporary workers from various employment agencies.
“Without access to cash in real time, debtor will be unable to meet payroll obligations and will be forced to immediately cease operations and terminate its employees, thereby causing immediate and irreparable harm to the Chapter 11 estate,” the documents state.
Another motion asks the court to extend the deadlines that would normally apply to file various reports and other information.
“The effort required to provide accurate and complete schedules and statements for this Chapter 11 case is significant,” the motion said. “The debtor has in excess of 900 vendors and approximately 300 former and current employees. The debtor has been able to utilize only a small, core group of management employees to compile the information necessary to complete the various motions and applications that have been or will be filed with the court.
“The same small group of management employees has been actively leading up all important aspects of the debtor’s ongoing business – working to maintain operations as close to ‘normal’ as possible, while at the same time participating in negotiations with lenders and other creditors, and collaborating with consultants to secure financing and to attract potential investors and/or buyers for the business,” the motion states.
In its statement released Friday, the company said that federal bankruptcy court protection will allow it “to manage the sale process on an expedited basis while protecting the interests of its employees, partners and other stakeholders.”
“The company will conduct normal business operations during the period of its restructuring. Employee pay will continue to arrive in full, employee benefits will remain in place, retirement accounts are intact and protected,” Pure Prairie said.
The company has obtained a committed debtor-in-possession (“DIP”) financing facility underwritten by Sandton Capital Partners for up to $15 million.
“Subject to court approval, this DIP financing, combined with cash from operations, is expected to provide sufficient liquidity to support the company’s continuing business operations and to minimize any disruption during the reorganization process,” the company said.
A hearing has been scheduled for Wednesday afternoon in federal bankruptcy court in Minneapolis to hear the company’s motions, including the motions asking for expedited actions.
Pure Prairie Poultry’s advisors in the restructuring are Lighthouse Management Group, serving as chief restructuring officer, Lakeshore Food Advisors, serving as financial advisor and broker, and Taft Stettinius & Hollister LLP, serving as legal advisors.
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