Dealers are taking a look at Farmland Industries, which filed for bankruptcy at the end of May. Spreads are wide in the high 80s to low 90s, and no trades could be confirmed. Although the $350 million asset-based revolver is fully backed and bank debt holders could receive substantial recovery if liquidated, negotiations to recover the loan could be tough because the company's members also are the holders of its subordinated notes.
The company ran into trouble as it relied extensively on debt to finance its growth. It was fundamentally a capital structure problem, noted Omar Jama, Fitch Ratings analyst. The company had issued demand notes and subordinated securities under its continuous debt program, but the public offering of those notes had been suspended, leading the company into a liquidity crisis. "We were unable to over come one significant challenge aggressive early redemption demands from our subordinated holders," said Bob Terry, company CEO, in a written statement. Future asset sales could be an indication that the company is trying to appease its banks, said Jama.
Deutsche Bank syndicated the deal in January of this year, and Rabobank, Harris Bank, U.S. Bank and CoBank also played major roles. The credit, structured as a $350 million revolver priced at LIBOR plus 31/ 2% and a $150 million amortizing term loan at LIBOR plus 41/ 2%, refinanced an off-balance sheet synthetic lease. Farmland Industries' officials could not be reached by press time.