April 25, 2018 Author: Murray Wise Associates
As we turn the corner into spring and the winds pick up, I am reminded of our industry as a whole. Whether I’m walking to the car or sitting in the bleachers at my daughter’s softball games, the wind always seems to be howling in the direction I’m facing this time of year. For farmers, this is all too common a feeling right now as they face the headwinds of low commodity prices, increasing interest rates, rising labor costs, potential issues with water, and potential macro issues such as international trade.
With all these headwinds, many find themselves in dire situations, which is why so many notable farm bankruptcies occurred across the U.S. in 2017 and early 2018. Farmers, experiencing this have little in common when it comes to what they grew – there were major bankruptcies of growers of blueberries, strawberries, Concord grapes, Vidalia onions, dairy, sweet potatoes and grain. These bankruptcies are not specific to one area, as they have been filed in states across the U.S.: California, Georgia, Indiana, Kansas, Michigan, Mississippi, Missouri, North Carolina and North Dakota.
This year as interest rates continue to move higher and margins remain slim for growers, I expect more individuals to find themselves between a rock and a hard place. However, as previously mentioned, it is not one geographic location – or a single crop – experiencing this, but the industry as a whole.
Perhaps the most notable story in agricultural distress this year was the case of Boersen Farms in Michigan. With more than 300 million dollars of debt involved, this was one of the largest distressed farming operations in the country. But it’s not just grain farmers facing headwinds right now. Penick Produce, one of the largest sweet potato growers and packers in Mississippi as well as owners of more than 3,000 acres of sweet potato-producing ground, filed for bankruptcy in the early summer of 2017. Recently another sweet potato grower and packer, Alexander Farms, agreed to buy Penick Produce out of bankruptcy for $12.75 million. Eclipse Berry Farms, a large strawberry grower in Oxnard, CA filed early this year. Following the death of the Company’s CEO and primary equity holder in early 2017, Murray Wise Capital (MWC) was engaged by the Company to evaluate its strategic options. Upon MWC’s recommendations, EBF appointed a third party Chief Restructuring Officer (“CRO”) and began the process of implementing procedures to maximize the recovery of asset values for all legally interested parties. In order to complete the wind-down and liquidation process and to orderly address the creditor claims, the company filed for Chapter 11 bankruptcy protection in early 2018. MWC is continuing to serve as financial advisor to EBF during this process and is responsible for assisting in the completion of the transaction with Superior Fruit and handling many of the financial reporting and administration duties required to file and implement a final Chapter 11 liquidating plan.
Other large agricultural bankruptcies include:
In many of these bankruptcies, the debtors must have felt as though this was the end. However, that is not always the case. Take Grainger Farms, a large farming operation in Florida, as an example. In this case, the farming operation was in a position in which the owners needed to declare Chapter 11 bankruptcy to reorganize. We were hired to help them through the bankruptcy process and restructure by selling excess property to pay down debt, successfully exit bankruptcy and continue farming. This would not have been possible had they not filed bankruptcy, as they were able to continue operations as a debtor-in-possession.
Perhaps the most common advantage of a farming operation filing bankruptcy is the ability to be a debtor-in-possession after filing and maintain control. Often, creditors will threaten foreclosure or legal action due to debts owed. With control, Grainger Farms was able to continue operations and guide the reorganization process, deciding which property to sell in order to reorganize. The enterprise was able to systematically address all creditors through the process and manage overreaching debt obligations and non-market leases. Another reason I have seen farming operations file is due to pending litigation, such as in the Spiech Farms case in Michigan in which there was a dispute with a creditor over a payment that could threaten the viability of operations.
Don’t think that I’m saying any specific farming operation should file for bankruptcy. This is a very complicated process, and often people can find themselves feeling lost, not knowing who to call, whether they should file Chapter 7, 11, or 12 bankruptcy or what needs to be done in terms of working with creditors. By evaluating the situation with financial professionals and legal representatives, an enterprise may be able to avoid bankruptcy altogether through open, honest dialogue.
When you find yourself in a distressed situation – whether you are the debtor or a manager of special assets at a bank – know this: Who you hire is important. Hiring the right firm to take control of the process and work through it can be the difference between a successful reorganization and a complete liquidation and exit from the industry, with creditors receiving next to nothing for their collateral.
In a situation such as the latter, no one is happy, whereas the former is making the best of a bad situation. I’ve often heard Robert Marcus, an attorney, farmer, trustee and chief restructuring officer that we have worked with on a number occasions say, “The key to a successful bankruptcy case is taking what the debtors feel like is a road to nowhere and building a bridge on that road through bankruptcy that leads to somewhere with a positive outcome for all interested parties.”
Don’t make the problem worse than it is by hiring either a firm that knows nothing about agriculture or simply the cheapest broker you can find. There are many options available in these situations such as debtor-in-possession financing and sale of non-essential assets to the operation. Make sure you have looked at every possible option. With our experience in this industry, we can help you through these tough decisions and present you with all your options.
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Murray Wise founded the Westchester Group in 1986 after acquiring the Champaign, IL division of the Sandage Companies, a traditional farm management and brokerage firm…
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