Farms and other creditors of the bankrupt NORPAC Foods cooperative are nervous that potential purchases of its assets will be jeopardized by a 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 each 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 a Nov. 18 court hearing.
“There is active interest in each of those facilities,” Kennedy said.
Meanwhile, CoBank — a major agricultural lender — is asking U.S. Bankruptcy Judge Peter McKittrick to eliminate the “automatic stay” that prevents the bank from trying to seize assets or take other enforcement actions while the company is reorganizing under Chapter 11 bankruptcy laws.
In exchange for removing that protection, CoBank would be willing to enter into a renewed “forbearance agreement” that would postpone any such enforcement actions until Nov. 25.
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 worry that CoBank’s proposal may not provide enough of a roadmap for NORPAC’s orderly dissolution and that 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.
Haker said 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. This sentiment was echoed by attorneys 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 doesn’t want its hands tied in terms of protecting its rights to collect on defaulted loans, which is why it has 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.
CoBank may be willing to further extend the forbearance period past Nov. 25 but it’s reluctant to commit to a longer term and a detailed roadmap for the process because the situation is so fluid, she said.
Pearson pointed out that Frank Tiegs had previously made an offer to buy most of NORPAC’s assets for $155 million but then withdrew from the deal, and that none of the current proposals have been finalized.
“As we know, circumstances can change in an instant and we need to be able to react to that,” she said.
Judge Peter McKittrick scheduled another hearing on the matter for Nov. 19.
Pearson noted that a decision will have to be made soon because an existing forbearance agreement expired on Nov. 15, which means NORPAC doesn’t currently have the right to use cash that serves as collateral for its debts.
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.