Bankrupt Del Monte Tweaks Auction Rules to Attract Bids
[Stay on top of transportation news: .]
Bankrupt canned fruit company Del Monte Foods won court permission to hold an auction of its assets after giving potential bidders more time to make an offer.
Company officials agreed to rewrite the rules governing the auction after creditors said they were concerned the sale process was not open enough to outsiders, Del Monte lawyer Rachael Ringer said during a court hearing Aug. 12.
The creditors wanted rules that “didn’t tilt the playing field,” Ringer said. “They wanted to encourage as many bidders as possible.”
Currently the company has a deal with lenders to act as the stalking horse, or initial, bidder. That group would use debt it holds as currency at the auction, a process known as “credit bidding.” In Chapter 11 bankruptcy cases, unsecured creditors sometimes complain that credit bidding can scare away other offers.
The lender group making the credit bid includes Davidson Kempner Capital Management, Fidelity Management & Research Company and investment funds overseen by Silver Point Capital. The group has agreed to limit how much of its bid will include debt it holds, lender lawyer Jason Z. Goldstein said during the hearing in New Jersey, where Del Monte filed bankruptcy.
Want more news? Listen to today's daily briefing above or go here for more info
“We want third party bidders to come in,” he said.
The deadline for initial indications of interest was moved to Sept. 19 from Aug. 20, Ringer said. The deadline for final bids was extended nearly two months to Nov. 4, and the auction is scheduled for Nov. 12.
Del Monte in a July 1 court filing said transportation companies are among the list of unsecured creditors. Uber Freight and Saddle Creek Logistics are owed $9.1 million and $1.4 million, respectively.
Uber Freight ranks No. 14 on the Transport Topics Top 100 list of the largest logistics companies in North America. Saddle Creek ranks No. 66.
Del Monte filed for bankruptcy less than a year after executing a controversial debt restructuring.
The company owes secured lenders about $1.25 billion in secured debt. Del Monte blamed the bankruptcy on multiple factors, including a costly buildup of excess inventory and rising interest rates.
The company executed a debt overhaul last year, which became the subject of a lawsuit by left-behind lenders that said Del Monte Foods defaulted on a $725 million financing agreement when it shifted the assets away from the reach of lenders.
The strategy — known in industry parlance as a drop-down transaction — allowed Del Monte Foods to raise fresh liquidity by borrowing against the transferred assets. The deal also prioritized participating lenders via debt swaps and created different payment priorities.
