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As Imperial Sugar warns lenders it won't be able to pay $12.2 million
in debt interest next week, three separate groups of sugar beet
growers have been working to buy 10 processing plants from the
cash-strapped Sugar Land company.
The company told investors last week in its annual report filed
with the Securities and Exchange Comission that it will not be able to
make the interest payment on $250 million of debt originally due Dec.
15. A temporary waiver granted by the company's creditors expires
Monday, and the grace period for that interest payment expires Jan.
14.
The American Stock Exchange halted trading of Imperial's stock when
it failed to make the payment Dec. 15, and analysts no longer follow
the company's stock.
Imperial Sugar has warned investors and lenders that if it fails to
negotiate a financial restructing, the company may file for Chapter 11
reorganization.
The company also disclosed in its annual report that its auditor,
Deloitte & Touche LLP, has expressed substantial doubt about
Imperial's ability to continue as a going concern because of its
recurring losses and covenant violations.
Officials with Imperial Sugar could not be reached, but the
company's annual report states, "Current domestic sugar market
conditions are continuing to have significant negative impact on the
company's operating results and liquidity."
NO SWEET DEALS
Meanwhile, Salt Lake City attorney Randon Wilson is representing
groups in California, Michigan and Montana interested in buying 10
Imperial Sugar plants.
Wilson submitted a letter of intent last October on behalf of
growers for the Imperial subsidiary Michigan Sugar Co. who want to buy
its four processing plants. And Wilson is working with about 800
growers in Montana and Wyoming interested in buying three Holly Sugar
plants owned by Imperial.
Meanwhile, an Imperial plant buyout proposal in California has been
"put on hold." Growers there hired Wilson early last year to
help them acquire three Imperial sugar beet plants in Northern
California, two of which Imperial had already said it intended to
close.
Despite an offer "in the neighborhood of $75 million" for
the four Michigan plants, the company has been holding out for more
money, Wilson says, and did not respond to the letter of intent until
December.
"The farmers have to know soon who will own the plants,"
Wilson says. "The growers have to buy their seed by Jan. 10 to
get a discount, and they have to tell their banks now what their crop
rotations are going to be, so it's a very close situation."
WAITING FOR CHAPTER 11
If Imperial Sugar does pursue the bankruptcy option -- and sooner
rather than later -- Wilson says that could be good news for the
growers.
"We assume that if a bankruptcy petition is filed, that would
open the way for us to get back into meaningful negotiations, this
time with the bankruptcy court," Wilson says.
Under terms of the proposed buy-out, Imperial would retain
marketing rights that would produce additional income for the company.
The deal also contains a provision to increase the purchase price if
sugar prices go up.
The California sugar growers are also running into trouble
negotiating with Imperial Sugar because the growers would need
Imperial to continue operating the plants into next year, Wilson says.
The company was reluctant to do that unless their between-season
downtime costs of about $5 million were covered, he says.
"We arranged for a $5 million loan to finance that, and they
still refused to operate through 2001," Wilson says. "As a
result, we couldn't keep the grower base going."
Northern California newspapers reported in December that some 250
sugar beet farmers and some 500 plant employees expected to be out of
work by the first of the year as a result of Imperial's plant
closings.
Three years ago, Wilson represented growers in acquiring
Amalgamated Sugar Co. in Ogden, Utah from Dallas-based Valhi Corp.,
representing the first major sugar plant buyout in 20 years. Growers
in that deal raised a half billion dollars to finance the acquisition.
"Virtually every sugar beet factory in the country is for sale
because of low sugar prices," says Wilson. "Most of the big
companies have determined that these factories belong in the hands of
growers. With an oversupply of sugar in the world, it's not as much
fun anymore for proprietary owners."
DOUBLY DOWNGRADED
In its annual report filed last week Imperial warned that it has
contracted a substantial portion of industrial sugar sales for fiscal
2001 at "historically low prices," and, as a result, the
company "may incur significant losses and negative cash flows
from operations" in 2001.
Standard & Poor's and Moody's Investors Service both downgraded
their ratings of Imperial's $600 million of debt last month. Moody's
noted that under Imperial's current restructuring plan, its secured
creditors "would be well covered with collateral value," but
that the company's remaining collateral will not cover senior
subordinated notes. The company has said it plans to convert senior
subordinated notes into common equity.
Last May, one of the company's largest investors, Irish
Agribusiness Greencore Group, dumped its 15 percent interest, and
Greencore's chief financial officer resigned from Imperial's board of
directors, as did the managing director of Lehman Brothers Holdings.
The second largest shareholder in Imperial Sugar as of Sept. 30 was
San Antonio-based Frost National Bank, with a 6.99 percent interest. |