Tue 07/13/2021 16:27 PM
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Relevant Documents:
Voluntary Petition
First Day Declaration
Cash Collateral Motion
First Day Hearing Agenda


















Summary
Pipeline Foods is a supply-chain services company focused on non-GMO, organic and regenerative food and feed
Attributes filing to the Covid-19’s impact on the consumer packaged goods industry, resulting in decreased customer orders, difficulties meeting operating expenses, regulatory scrutiny and credit agreement defaults
Intends to pursue a sale, with the cases funded through use of cash collateral with the consent of the prepetition Rabobank secured parties

Pipeline Foods LLC, a Fridley, Minn.-based supply-chain services company focused on non-GMO, organic and regenerative food and feed, filed for chapter 11 protection on Thursday, July 8, in the Bankruptcy Court for the District of Delaware. The debtors seek to “preserve value” as they “pursue a sale, stabilize the Debtors’ business, facilitate the efficient administration of these chapter 11 cases, lessen the impact of the chapter 11 cases on the Debtors’ day-to-day operations, and facilitate a successful chapter 11 Plan.” For access to the relevant documents above as well as our First Day by Reorg team's coverage of all U.S. chapter 11 cases filed since 2012 with over $10 million in liabilities including the Pipeline Foods chapter 11 filing click here to request a trial

The case would be funded through the use of cash collateral, with the consent of the Rabobank secured parties.

The first day hearing is set for tomorrow, Wednesday, July 14, at 9 a.m. ET.

The company reports $189.2 million in assets and $143.7 million in liabilities. The company’s prepetition capital structure includes:

  • Secured debt:

    • Coöperatieve Rabobank revolving credit agreement: $43.9 million (inclusive of $1.8 million of L/Cs)

    • Compeer Financial, FLCA real estate credit agreement (Pipeline Real Estate): $6.1 million

    • Compeer Financial, PCA term loan agreement (Pipeline Foods): $19.9 million

    • Farm Credit Canada: $1.5 million



  • Equity: Pipeline Holdings LLC is a Delaware limited liability company whose members include AMERRA PF Holdings LLC (97.5%), Pipeline Opportunity Partners LLC (1.3%), OV Holdings LLC (0.7%), SISJAS LLC (0.3%) and Moore Lake Equity Partners LLC (0.2%). Pipeline Foods LLC is a Delaware limited liability company whose sole member is Pipeline Holdings. Pipeline Foods Real Estate Holding Co. is a Delaware limited liability company whose sole member is Pipeline Foods. Pipeline Foods ULC is an unlimited liability corporation under the laws of the province of British Columbia, with Pipeline Foods being the sole owner of its equity interest. Pipeline Foods Southern Cone SRL is a limited liability company organized in Buenos Aires, Argentina, with Pipeline Foods owning 99.5% of the equity interest and Pipeline Foods II owning 0.5% of the equity. Pipeline Foods II LLC is a Delaware limited liability company whose sole member is Pipeline Foods.


Pursuant to an intercreditor agreement between Rabobank (as agent and lender for the revolving credit agreement, along with lenders ING Capital LLC and CoBank, ACB) and Compeer, Compeer’s interests are senior to Rabobank’s in the “Compeer Collateral” (which includes certain real property and all fixtures, machinery, appliances, equipment and other tangible personal property related to such real property), and Rabobank’s interest are senior to those of Compeer in the “Working Capital Collateral.” The proposed interim order also says that pursuant to the intercreditor agreement, “the security interests of the Prepetition Rabobank Agent in all of the Cash Collateral are senior and prior to the security interests of Compeer Financial, PCA.” The Farm Credit Canada loan is secured by, among other things, all personal property of Pipeline Canada, subject to the security interests of Rabobank as agent.

As of May 21, the company had $6.4 million in cash, $1.2 million in cash-margin accounts; $25.7 million of accounts receivable, $3.3 million in prepaid expenses, $47.5 million in inventory, $32 million in forward contract receivables, $43.1 million in fixed assets less depreciation and $29 million in intangible assets less accumulated amortization.

The company attributes the bankruptcy filing to the Covid-19 pandemic, which (i) stalled new product development by consumer packaged goods companies and limited the ability of these companies to visit and approve new manufacturing facilities, which in turn limited the debtors’ ability to increase volumes and (ii) led to a decrease in orders from foodservice customers. As a result, the debtors were unable to timely pay their operating expenses, leading to the issuance of an order for records to the debtors from the Minnesota Department of Agriculture based on producer complaints of late payment and, subsequently, enforcement of certain reporting requirements and other conditions by the MDA to maintain the debtors’ operating licenses. The MDA further advised Pipeline Foods that following the report to be provided on Sept. 6, “the MDA would decide on continuation of conditional licensure.”

On June 25, the debtors received a memorandum of adjustments from the Iowa Department of Agriculture and Land Stewardship, Grain Warehouse Bureau, requiring immediate payment of aged payables “as identified.” Further, in April, Pipeline Foods’ working capital lenders advised that they would not make any further loans, demanded repayment of the outstanding loans in full and declared the loans in default. Shortly thereafter, the Compeer lenders declared their loans in default as a result of the default declared by the working capital lenders.

The debtors are represented by Saul Ewing Arnstein & Lehr in Wilmington, Del., as bankruptcy counsel and Bryan Cave Leighton Paisner as counsel for the board. Winston Mar of SierraConstellation Partners is the chief restructuring officer. Stretto is the claims agent. The case has been assigned to Judge Karen B. Owens (case No. 21-11002).

Background

Founded in January 2017, Pipeline Foods LLC and its subsidiaries comprise a U.S.-based supply-chain solutions company with a focus on “accelerating the availability and reliability of organic, non-GMO, and regeneratively grown food.” The company is one of the few U.S.-based ingredient suppliers exclusively focused on organic and non-GMO ingredients and provides farmers with “education and financial support” in converting to organic practices.

After its formation in 2017, the company began acquiring a selection of grain storage and ingredient processing assets that could be “rapidly converted” to be 100% organic and non-GMO within the U.S. and Canada. In 2019 the company acquired select organic and non-GMO assets from SunOpta Grain and Food Inc.; the acquisition “quickly doubled” the scale of the company and “solidified” its position within the broader North American organic ingredient supply-chain industry.

The total revenue for fiscal year ended June 30, 2020, was $222.5 million, and for the period from July 1, 2020, through May 31, 2021, it was $208.1 million.

The company’s customers consist of large consumer packaged goods companies, food manufacturers, international trading groups and animal protein producers.

The organic and non-GMO grains originate from major growing regions around the world, with approximately 55% to 65% of planned sales volumes sourced from producers in the U.S. and 25% to 30% from Canada. The company plans to expand its origination networks in Argentina and India to source 5% to 10% of future total volumes. The company estimates that more than 90% of its volumes are directly sourced from farmers, with the remainder sourced from third-party trading relationships.

The company’s sourcing strategy is driven by its sales activities, and it enters into short-term and long-term offtake contracts with farmers with annual repricing mechanisms. In 2019 the company contracted with 1,461 growers and sent market updates and bid sheets to more than 1,800 growers in the U.S. and Canada.

In an effort to build “efficiencies” into the supply chain, the company invests in assets on rail lines in order to minimize the total distance to transport crops and decrease the environmental impact and logistical costs.

The company owns the following nine facilities:

The facilities are located near major producing regions and transportation lines to enable the company to source from nearby farmers and serve major domestic and international end markets. The company is subject to “strict regulatory guidance” established by the U.S. Food and Drug Administration, Canadian Food Inspection Agency and other governmental regulatory agencies.

The debtors’ largest unsecured creditors are listed below:


 










































































10 Largest Unsecured Creditors
Creditor Location Claim Type Amount
Simmons Feed & Supply LLC Salem, Ohio Customer
Advance
$    5,21,571
Agri Exim DMCC Dubai Trade 2,646,083
Jim Wolf Jeffers, Minn. Note Payable 2,222,027
Crystal Valley Farms LLC Orland, Ind. Customer
Advance
1,714,911
Earl Pederson Bajou, Minn. Trade 1,527,590
Brushvale Seed Inc. Breckenridge, Minn. Trade 1,050,411
Ecopure Specialities Limited New Delhi Trade 882,411
Organic Farmers Michigan Decker, Minn. Note Payable 872,893
Organic Ventures, Inc. Arcadia, Wis. Trade 675,885
LSM Commodities Ltd. Saskatoon, Canada Trade 548,432

The case representatives are as follows:



 




















































































Representatives
Role Name Firm Location
Debtors' Counsel Mark Minuti Saul Ewing
Arnstein & Lehr
Wilmington, Del.
Monique Bair DiSabatino
Matthew P. Milana
Michael L. Gesas Chicago
Barry A. Chatz
David A. Golin
Andrew J. Rudolph
Counsel to the
Debtors' Board
N/A Bryan Cave
Leighton Paisner
N/A
Debtors' CRO Winston Mar SierraConstellation
Partners
West
Conshohocken, PA
Co-Counsel to
Coöperatieve
Rabobank, as
Prepetition Agent
Eric C. Daucher Norton Rose
Fulbright
New York
H. Stephen Castro
Co-Counsel to
Coöperatieve
Rabobank, as
Prepetition Agent
Matthew P. Ward Womble Bond
Dickinson
Wilmington, Del.
Morgan L. Patterson
Counsel to Agri
Exim DMCC
Victor A. Sahn SulmeyerKupetz Los Angeles
David V. Sack
Debtors' Claims
Agent
Sheryl Betance Stretto Irvine, Calif.



Cash Collateral Motion

Under a proposed order negotiated with the prepetition Rabobank secured parties, the debtors seek authority to use the cash collateral of the lenders, with Coöperatieve Rabobank UA, New York Branch as agent. The debtors also seek authorization to maintain and extend existing letters of credit under the Rabobank credit agreement or obtain new replacement letters of credit. The use of cash collateral would terminate on the earliest of the effective date of a chapter 11 plan, customary events, entry of a final order within 35 days after entry of the interim order or failure to meet various bid procedures and plan milestones (which are blank in the motion and the proposed order).

The company proposes the following adequate protection to the prepetition Rabobank secured parties: (i) replacement liens; (ii) allowed superpriority administrative expense claims; (iii) payment of prepetition and postpetition interest at the non-default rates; (iv) payment of net cash proceeds from the sale of unsold inventory in excess of $50,000 to repay obligations owed to the prepetition Rabobank secured parties; (v) payment of prepetition agent fees and expenses; and (vi) right to credit-bid the full amount of the prepetition obligations. Additionally, upon entry of a final order, the adequate protection collateral would include the proceeds from any avoidance action provided but would not include any avoidance actions of the debtors.

“To the extent required, the adequate protection provided to the Prepetition Rabobank Agent herein shall constitute adequate protection of any interests of Compeer Financial, PCA or Farm Canada Credit in Cash Collateral,” the proposed interim order states.

In addition, subject to entry of a 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 carve-out for professional fees is $50,000.

The challenge period is the later of: (i) 75 days after entry of the interim cash collateral order; (ii) a later date agreed to by the prepetition Rabobank agent, with the consent of the required lenders; or (iii) a later date ordered by the court. The investigation budget for any official committee of unsecured creditors is $50,000.

The proposed budget has yet to be filed. The use of cash collateral is also subject to various milestones with respect to bid procedures and the filing of a plan and disclosure statement that remain bracketed.

Other Motions

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



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