Allens’ creditors object to Seneca’s bid terms

story by Kim Souza
ksouza@thecitywire.com

Creditors of Allens Inc. lined up before U.S. bankruptcy judge Ben Barry on Monday (Jan. 6) objecting to several matters involving the stalking horse bid made by Seneca Foods on Dec. 16.

Judge Barry took the matters under advisement and said he would make a quick ruling on the bidding procedure and finalize a date for a sale hearing, while also evaluating Seneca’s offer as the stalking horse bid.

It’s just a matter of time before Siloam Springs-based Allens is auctioned off to the highest bidder, which could negatively impact roughly 120 corporate jobs, which would be a blow to Siloam Springs and the local economy.

Allens reported $420 million in 2012 revenue, down 30% from 2011, and said it has just under 1,000 employees, most of those are hourly. But the higher paying salary jobs are those in the company’s home office and the most at risk during a buyout. Allens' execs helped orchestrate the bid submitted by Seneca Foods last month. Terms outlined to the court include a $148 million cash bid with debt assumption for Allens canning business, which is still subject to court approval.

Counsel for several creditors who hold second-lien debt for Allens argued Monday (Jan. 6) the timeline for the bid procedure was too short and the break-up fee of $5 million payable to Seneca was excessive, should the New York-based fruit company be outbid. The second-lien secured parties also argued that the $148 million cash bid would be subject to a negative working capital adjustment that the debtors currently expect will be at least $45 million, resulting in a cash price that is closer to $100 million.

They said $100 million would not be sufficient to satisfy secured claims, let alone provide for distributions to the second-lien secured parties and other creditors. According to court records, New York-based Cortland Capital Market is the lead second-lien creditor with $65.6 million on the line.

Recently amended court records indicate Allens owes nearly $287.94 million to primary and secondary lenders, with $108 million of that being unsecured claims. Allens reported assets of $294.46 million, which does not include real property.

The second-lien creditors waived their prior objections to setting a Jan. 28 deadline for the bids, a Feb. 3 auction and Feb. 10 hearing to finalize the sale.

Counsel for Allens told the court the Seneca bid was fair and the only viable offer at this time, while there have been a dozen or so inquiries for due diligence. Company attorneys also added that the break-up fees associated with the deal were in line with court guidelines given the risk assumed by being the first bidder.

Allens still hopes to sell its frozen vegetables business in Montezuma, Ga., in a separate transaction. No deal has been announced for this business segment at this time. The frozen food assets total roughly $32 million, according to court records.

NAMESAKE LOST
Allens has been part of the local business fabric for more 88 years since opening its canning operation near Siloam Springs. The company survived the Great Depression and severe droughts of the 1930s but the corporate namesake won’t likely survive the fourth family generation as its bankruptcy case winds down in 2014.

Last month Allens announced that it hoped to sell its canned food brands to Seneca.

“We are pleased to reach this agreement with Seneca and to begin a court-supervised sales process intended to maximize the value of Allens,” Jonathan Hickman, chief restructuring officer of Allens, said last month.

“We are encouraged by the interest Allens has received and are committed to an outcome that provides the most value for our creditors,” he added.

Bankruptcy experts agree the court has an obligation to get the most money possible for the creditors from the sales of the debtor’s assets. But when the company is sold off in parcels there is no guarantee any of its brands or namesake will survive.

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Seneca tried to acquire Allen’s in 2011 in hopes that it would operate as a subsidiary, but after months of due diligence the firms could not reach an agreement and abandoned the deal. This time it looks as if Seneca will hold all the strings, should its bid win the auction by the bankruptcy court.

Seneca Foods is the nation's largest processor of canned fruits and vegetables. The company reported weaker net earnings for the fiscal six months ended Sept. 28 of $8 million, this compared to $22.7 million for the same period in the prior year. However, net sales increased $20.1 million, or 3.7% to $568.8 million in the first six months of fiscal 2013.

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