Pilgrim's faces bankruptcy: Company's $1.5 billion debt doesn't worry area growers about plant's future

Nov 01, 2008 (The Paducah Sun - McClatchy-Tribune Information Services via COMTEX) -- CHX | Quote | Chart | News | PowerRating -- Pilgrim's Pride, whose 1,500-employee plant at Mayfield is one of the area's largest employers, is in serious financial trouble and may be headed for bankruptcy.

The nation's largest chicken producer also is defending a new federal lawsuit from investors claiming Pilgrim's falsely painted a rosy picture of its money problems. A San Diego law firm filed the lawsuit Wednesday in U.S. District Court for the Eastern District of Texas.

Pilgrim's stock fell heavily after independent research firm CreditSights said Wednesday that it is "highly probable" the Pittsburg, Texas, company will have to seek bankruptcy protection. In the past year, Pilgrim's shares have plummeted from about $30 to just over a dollar.

CreditSights, which didn't consult Pilgrim's, reacted to the company's Monday statement that it reached an agreement with lenders to extend a temporary credit waiver through Nov. 26. A previous 30-day extension expired Tuesday. CreditSights said the second extension merely postponed the obvious.

Pilgrim's is extending a 30-day grace period to pay $25.7 million in interest, due Monday. The company is about $1.5 billion in debt, mainly because of its $1.3 billion purchase of rival Gold Kist in early 2007. That pushed Pilgrim's to the top of the list of chicken producers, ahead of Tyson Foods.

But Pilgrim's soon faced soaring feed prices and a slumping economy, causing fewer people to eat chicken at home and in restaurants. Production costs shot up and demand fell.

Last March, Pilgrim's announced 1,100 layoffs and the closure of a chicken plant and six distribution centers. The company said its total feed costs in 2008 might reach $1.3 billion more than two years ago.

"We continue to believe that Chapter 11 (bankruptcy reorganization) is not in anyone's best interest, and we're working hard to develop a long-term solution to improve liquidity and capitalize on our strategic advantage," Pilgrim's spokesman Ray Atkinson said Friday.

The investor lawsuit alleges Pilgrim's failed to disclose results showing a continued slide that drastically hurt stock value from May through September. In late September, Pilgrim's warned of significant losses and resulting credit problems.

Atkinson said the company does not comment on lawsuits.

Mayfield plant

Atkinson declined to speculate on the future of the Mayfield plant or any of its 34 other processing factories in the U.S., Puerto Rico and Mexico. He did say the company informed its 50,000 employees Friday morning of this week's developments.

"The message is we all need to remain focused on our jobs and serving customers the best we can," he said.

Processing about 400,000 chickens daily, the Mayfield plant buys from roughly 150 producers in the Jackson Purchase -- 40 percent in Graves County.

Carlisle countians Don Thornsbrough and his son, Chad, sell more than 1.5 million chickens a year to the Mayfield plant. They have eight barns, each raising 29,400 chickens 61/2 times yearly.

"We just delivered a load, and so far we haven't had any trouble getting paid," Don Thornsbrough said.

He said he grew worried last spring with the closure announcements and renewed emphasis of Pilgrim's heavy debt to buy Gold Kist. Pilgrim's hedged buying some grain, then lost money as prices rose. The firm blamed projected heavy fourth-quarter losses largely on bad hedges.

But Thornsbrough, who has raised chickens for the Mayfield plant since it opened in 1990, remains optimistic.

"This plant has always been one of the most profitable plants in the country," he said. "My understanding is that if it does change hands, business will go on as usual."

Seaboard Farms built and expanded the plant before selling it to ConAgra in 2000. Pilgrim's bought it in 2003.

Pilgrim's has typically eliminated a production day every couple of weeks rather than cut jobs at its ongoing plants, Atkinson said. "The cutbacks themselves have not resulted in any layoffs."

Joe Walker can be contacted at 575-8656.

To see more of The Paducah Sun, or to subscribe to the newspaper, go to http://www.paducahsun.com. Copyright (c) 2008, The Paducah Sun, Ky. Distributed by McClatchy-Tribune Information Services. For reprints, email tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave., Suite 303, Glenview, IL 60025, USA.

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index