A major agricultural bank will likely be allowed to foreclose on the assets of the bankrupt NORPAC Foods cooperative, but has agreed to forego using that authority until Dec. 10.
U.S. Bankruptcy Judge Peter McKittrick has said he plans to cancel the Chapter 11 bankruptcy protection that prohibits CoBank from trying to seize assets that serve as collateral for the food processor’s debts.
In return, CoBank would agree to extend until Dec. 10 a “forbearance agreement” that would prevent it from actually taking such enforcement action, thereby giving NORPAC time to potentially sell off its processing facilities to raise money.
The deal was tentatively reached during a Nov. 19 bankruptcy hearing, but the specifics of the agreement must still be cleared by CoBank officials and signed by Judge McKittrick.
As part of the agreement, CoBank would have to return to bankruptcy court before turning over NORPAC’s dissolution to a receiver, which is a custodian who controls a company’s finances.
Farms and other creditors of the farm cooperative had been nervous that potential purchases of NORPAC’s assets would have been jeopardized by the bank’s recent legal maneuvers.
The processing company recently agreed to sell its bulk inventory, intellectual property, certain machinery and its facility in Quincy, Wash., to agribusiness entrepreneur Frank Tiegs for $93.5 million.
NORPAC’s in negotiations with at least three potential buyers who want to purchase one or more of its Oregon processing plants in Stayton, Brooks and Salem, though the proposals aren’t far enough along to require sale permission from a bankruptcy judge, said Albert Kennedy, the company’s attorney, during an earlier court hearing.
“There is active interest in each of those facilities,” Kennedy said.
However, CoBank wanted to eliminate the “automatic stay” that prevents the bank from trying to seize assets or take other enforcement actions while the processing company is reorganizing under Chapter 11 bankruptcy laws.
Farms and other creditors of NORPAC’s want to be notified of any pending enforcement action against the cooperative so they can also seek to cancel the company’s bankruptcy protections and go after its assets.
However, these creditors had worried that CoBank’s proposal may not have provided enough of a roadmap for NORPAC’s orderly dissolution.
The bank had previously proposed to extend a forbearance agreement until Nov. 25, and other creditors worried such a short forbearance period will keep the company in a state of uncertainty.
“I think it’s imperative that we tread carefully,” said Oren Haker, attorney for Castle Rock Farming in Boardman, Ore., during the earlier hearing.
It’s important not to do anything that will chill the interest in NORPAC’s assets among potential buyers or make it more difficult for potential transactions to be completed, Haker said. This sentiment was echoed by attorney for several other agriculture companies who are owed money by the cooperative.
CoBank is in a powerful position in the bankruptcy process because it’s owed $125 million, making it NORPAC’s largest creditor, and because it loaned the cooperative an additional $15 million to keep the company operational during bankruptcy.
Teresa Pearson, CoBank’s attorney, said the bank didn’t want its hands tied in terms of protecting its rights to collect on defaulted loans, which is why it had proposed such a short forbearance extension.
“The bank, to put it in a colloquial way, wants to keep a pretty short leash on this process,” Pearson said during the earlier hearing.
However, during the recent hearing, Pearson said the bank was willing to wait until Dec. 10, when the Quincy facility’s sale comes up for the bankruptcy court’s approval.
The bank would prefer to recoup its money by allowing NORPAC to sell its assets than by foreclosing on its collateral, Pearson said. “We hope we won’t need to get to that point.”
The future of NORPAC’s assets is of interest to farmers who supply the cooperative as well as the 1,400 workers who’ve been issued layoff notices at its Oregon facilities in Stayton, Brooks and Salem.
Originally, Tiegs had planned to buy most of NORPAC’s assets for $155 million. He then withdrew from the deal, citing the company’s alleged withholding of information as well as environmental and regulatory problems.
“As we know, circumstances can change in an instant and we need to be able to react to that,” Pearson said.