Tue 02/16/2021 12:40 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
DIP Financing Motion
First Day Hearing Notice

Country Fresh is a provider of fresh-cut fruit, vegetable and snack foods to supermarkets, club stores and convenience stores and industrial and food-service customers
Attributes filing to liquidity challenges driven largely by the pandemic on both the demand and supply sides of the business
Filed to explore reorganization options through a plan or a sale with private equity firm Stellex as stalking horse for “virtually” all American and Canadian assets
Seeks to fund case with $13.4 million in new money DIP financing from certain senior secured bridge lenders

Country Fresh Holding Company Inc., a Woodlands, Texas-based provider of fresh-cut fruit, vegetables and snack foods, filed for chapter 11 protection on Monday, Feb. 15, in the Bankruptcy Court for the Southern District of Texas, along with various affiliates. The company filed to explore options for a potential reorganization through a plan or a sale with stalking horse Stellex Capital Management - a private equity firm “that has teamed with certain of the Company’s prior owners” - for “virtually” all of the company’s American and Canadian assets except for a facility in Vancouver, British Columbia and its associated operations. The debtors say that they are “contemporaneously” entering into an asset purchase agreement with Stellex. The company’s Canadian affiliates are expected to file proceedings in Canada under the Companies’ Creditors Arrangement Act. Continue reading for our First Day team's filing alert of the Country Fresh Holding Company bankruptcy filing and Request a Trial for access to the linked documents and analysis as well as our coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities.

The Stellex purchase price would be for $30 million in cash consideration and $25 million in a secured note. “Though the total anticipated consideration is less than the debt owed to the Prepetition Lenders, such Prepetition Lenders are currently willing to accept that price subject to a fair and competitive bidding process during these Chapter 11 Cases and the CCAA Proceeding.”

The case would be funded with $13.4 million of new money DIP financing from certain of their senior secured lenders that provided prepetition bridge financing.

The first day hearing has been scheduled for today, Tuesday, Feb. 16, at 1 p.m. ET.

The company reports $100 million to $500 million in both assets and liabilities, and its prepetition capital structure includes:


The company also received a PPP loan of $5.8 million, which has been fully used.
Country Fresh Holding Company Inc.’s equity is held 100% by non-debtor Country Fresh Holding LP. A list of equityholders is HERE.

Paul, Weiss, Rifkind, Wharton & Garrison and Porter Hedges, as counsel to an ad hoc group of lenders, filed a Rule 2019 statement today, disclosing the following holdings:

The debtors are represented by Foley & Lardner in Houston. Ankura Consulting Group’s Stephen Marotta and B. Lee Fletcher are serving as the debtors' chief restructuring officer and restructuring officer, respectively. Epiq is the claims agent. The case has been assigned to Judge Marvin Isgur (21-30574).

Events Leading to the Bankruptcy

The company attributes the bankruptcy filing to significant near-term liquidity and capital structure challenges throughout 2020 due to “significant economic pressures arising in large part” due to Covid-19. The demand for the company’s largest product segments - fruit and vegetable trays - declined significantly, the debtors say, as federal, state and local governments, restaurants, businesses, schools and consumers reacted to the pandemic. In addition, the temporary closure of their Dallas production facility, the idling of the Reading, Pa., production facility and labor issues related to the pandemic and the facility closures, resulted in a “significantly constrained liquidity position for which the Company had few readily available solutions.” The debtors say that they also faced pandemic-driven supply-chain problems that forced Country Fresh to pay a premium for certain products and incur higher marginal shipping cost for products due to lower volume and less efficient shipping.

Among the debtors’ operations affected by the pandemic, the debtors stress the impact of schools transitioning to virtual learning, “a significant problem for the Company given its partnership with New York schools,” and, “most importantly,” the cancellation of large social and other gatherings.

The company executed a debt restructuring and exchange transaction in 2019 to deleverage its balance sheet and convert certain long-term obligations to its secured lenders into equity, through which the lenders “who continue to be the largest stakeholders in the Company” equitized more than $300 million of senior secured debt. After this restructuring, Kainos Capital (which acquired Country Fresh and various affiliated entities beginning in 2017), no longer owned the company and the company’s first and second lien lender groups took ownership of 95% and 5%, respectively, of the company’s common stock in exchange for the satisfaction of “significant” secured debt. At the same time as the restructuring, the company executed new agreements with its lenders to refinance existing debt.

With diminishing liquidity towards the end of 2020, the company sought additional financing from its prepetition secured lenders and engaged with an ad hoc group of lenders, resulting in an initial $5.6 million of bridge financing on Dec. 29, 2020 and additional $2.4 million in financing on Feb. 4. The debtors also engaged with the ad hoc group and certain other prepetition lenders on DIP financing, resulting in the DIP facility with a “subset of those lenders.”

The company began a marketing process several months ago, when “several interested parties” approached the company on their own accord regarding a potential going concern purchase. Thereafter, the company hired Stout to begin a going concern marketing process, which was expanded in early January to solicit offers for a “wide range” of transaction structures, seeking a closing by late March. These efforts led to a non-binding letter of intent in mid-December 2020 from an unidentified party for substantially all of the company’s non-real estate assets in the U.S. and Canada, but this party ultimately withdrew its non-binding offer on Jan. 7. The debtors ultimately received a letter of intent from Stellex on Jan. 20 to acquire all or substantially all of the company’s assets in the U.S. and Canada and assume certain liabilities, roll these assets into a to-be-formed company and provide cash consideration and a note payable.

To date, Stout has contacted approximately 213 potential buyers including about 90 strategic parties, 20 private equity firms with strategic portfolio companies in the sector and more than 100 purely financial buyers, of which approximately 83 signed confidentiality agreements, 74 reviewed the teaser, 37 progressed to review a confidential information memorandum and 20 reviewed the confidential information memorandum and the data room. “Among those parties that Stout believes are still interested at this time, several have indicated that they are considering purchases of the Company as a whole while others are interested in select assets or entities,” the first day declaration says.


The debtors, consisting of various Country Fresh and Sun Rich Foods entities, make up the Fresh Food Group, “a premier, full-service provider of branded and private label offerings of fresh-cut fruits and vegetables, ready-to-go meals and meal kits, behind-the-glass salads, snacks and ingredients/bulk food components to supermarkets, club stores and convenience stores and industrial and food-service customers in the United States and Canada.” The company historically focused exclusively on fresh-cut fruit and vegetables, but has recently expanded its product offerings into sous vide and kettle cooking of chicken, fish and beef entrees as well as pasta. The debtors have 2,500 employees.

The Fresh Food Group operates 11 processing facilities, eight of which are based in the U.S. and three of which are in Canada. In 2019, these facilities processed more than 230 million pounds of fruit, vegetable and other food products. Since 2017, the company has invested approximately $25 million in its various facilities to upgrade and automate production lines. For example, the Dallas facility has received substantial upgrades to improve its infrastructure and automation capabilities, and the Oswego complex in New York houses a 45,500 square foot state-of-the-art apple processing facility and 52,000 square foot dry storage and sorting facility, “each of which are critical to one of the largest product segments in the Company’s offerings.” Overall, Fresh Food Group’s geographical coverage - “on both coasts of the United States, near major population centers in Texas, in the heart of New York apple country, and in Ontario and British Columbia in Canada” - allow its fleet of more than 70 tractors, to quickly and efficiently service customers across the U.S. and Canada.

The company’s board established an independent committee in December 2020 “due to potential conflicts arising from certain Board members affiliations with the largest stakeholders in these Chapter 11 cases.”

The company’s corporate organizational structure is HERE.

The debtors' largest unsecured creditors are listed below:

10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Victory Packaging Dallas Trade Debts $    919,251
D6 Inc. Portland, Ore. Trade Debts 886,477
Pacific Sales Pinedale, Calif. Trade Debts 876,835
Silchuk Logistics LLC Bedford, Texas Trade Debts 788,627
Resource MFG Los Angeles Trade Debts 706,433
Sol Group Marketing Co. Atlanta Trade Debts 628,570
Stella Farms LLC Scottsdale, Ariz. Trade Debts 600,454
A Plus Growers LLC Raton, Fla. Trade Debts 596,890
Integrity Express Logistics LLC Cincinnati Trade Debts 497,909
Acme Truck Line Inc. Nashville, Tenn. Trade Debts 496,003

The case representatives are as follows:

Role Name Firm Location
Debtors' Counsel John P. Melko Foley & Lardner Houston
Sharon M. Beausolei
Mark C. Moore Dallas
Melina T. Bales
Debtors' Restructuring
Stephen Marotta (CRO) Ankura Consulting
New York
B. Lee Fletcher (RO)
Debtors' Claims Agent Brian Hunt Epiq New York
Co-Counsel to the
Ad Hoc Group and
Certain of the
DIP Lenders
Elizabeth R. McColm Paul, Weiss, Rifkind,
Wharton & Garrison
New York
John T. Weber
Diane Meyers
Grace Hotz
Co-Counsel to the
Ad Hoc Group and
Certain of the
DIP Lenders
John F. Higgins Porter Hedges Houston
M. Shane Johnson
Megan Young-John
Counsel to the
Administrative Agents
David Rosenzweig Norton Rose
Fulbright US
Stephen Castro
United States Trustee Stephen Douglas Statham Office of the U.S.

DIP Financing Motion

The debtors request approval of DIP financing in the form of a multiple-draw term loans of $13.4 million, from “certain of their Senior-Secured Lenders that had provided prepetition bridge financing, a group of which agreed to provide such funding through the DIP Credit Agreement,” with Cortland Capital Market Services LLC as agent. On an interim basis, the debtors seek to borrow up to $11.5 million (inclusive of an upfront fee in the form of original issue discount equal to 4% of each DIP lender’s commitment). The DIP facility provides the debtors with approximately $12.9 million (excluding the upfront fee) of new money financing, and does not contemplate a rollup.

The prepetition secured parties have consented to the use of cash collateral. The DIP proceeds would fund operations during the sale, which has the support of the prepetition lenders and DIP lenders. After the CCAA proceeding is filed, the Canadian entities “expect to be able to fund their post-filing expenditures from operations,” but they would have the ability to access proceeds of the DIP facility to fund operations if needed, through secured intercompany transactions. To facilitate this, the Canadian entities are parties to the DIP credit agreement and a Canadian Guaranty and Security Agreement providing that the Canadian entities would guarantee the DIP obligations up to the amount of any intercompany advances.

The DIP financing bears interest at either 15% PIK monthly or 12.5% payable in cash, with 2% added for the default rate, and matures on the earliest of six months after the petition date, the effective date of a plan, the sale of all or a substantial portion of the debtors’ assets or acceleration of the loans.

To secure the DIP financing, the debtors propose to grant priming liens on the prepetition collateral with the consent or deemed consent of the prepetition secured lenders (including proceeds of avoidance actions subject to the final order). The loan would also have superpriority administrative expense status.

The facility also includes a DIP agent fee as set forth in a fee letter.

The company proposes the following adequate protection to its senior secured lenders: replacement liens, superpriority administrative expense claims and professional fees of the agent and ad hoc group of lenders. The first lien secured parties would be entitled to adequate protection in the form of replacement liens, superpriority administrative expense claims and reimbursement of professional fees for the first lien agent and ad hoc group (to the extent not duplicative). The second lien lenders would be granted replacement liens and superpriority administrative expense claims.

In addition, subject to the final order, the debtors propose a waiver of the estates’ right to seek to surcharge its collateral pursuant to Bankruptcy Code section 506(c) and the “equities of the case” exception under section 552(b).

The carveout for professional fees is $275,000.

The proposed budget for the use of the DIP facility is below:

The DIP financing is subject to the following milestones:

  • Chapter 11 petition date: Feb. 15;

  • Commencement of CCAA proceedings: Feb. 17;

  • Interim DIP order: Entered within two business days of petition date;

  • CCAA order on DIP: Within 10 days after commencement of CCAA proceedings;

  • Bid procedures order: Entered within 14 days of petition date;

  • CCAA bid procedures order: Entered within five days of entry of the bankruptcy court’s bid procedures order;

  • Final DIP order: Entered within 30 days of petition date;

  • Sale order: Entered within 39 days after petition date;

  • CCAA sale order: Entered within one day of entry of bankruptcy court’s sale order;

  • Sale closing: Within 44 days of petition date; and

  • Closing of sale of Canadian entities’ assets: Within 42 days of commencement of CCAA proceedings.

The lien challenge deadline if the earlier of (a) plan confirmation or (b) for an official committee of unsecured creditors, 60 days from formation,and for any other party in interest, 75 days after entry of the interim order. The UCC lien investigation budget is $25,000.

Other Motions

The debtors also filed various standard first day motions, including the following:

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