DF - Dean Foods

[Cigarbutt]

I was wrong on this one (luckily I divested during a recent high)

 

In hindsight the Saputos CEO's commentary should have been warning that no buyers would step up... next time I will listen to Cigarbutt  ;D

Well, in this case, all I did was hypothetical and you made money so maybe I'm the one who should learn. :)

[Viking]

Good summary of Deans: https://www.fooddive.com/news/how-dean-foods-bankruptcy-is-a-warning-sign-to-the-milk-industry/567486/

 

I am interested to see what happens to Dean Foods given i own a liitle Saputo.

[Cigarbutt]

Sort of a pre-post-mortem based on available info now, given the recent stalking horse bid from DFA for 44 of the 58 production facilities.

https://www.businesswire.com/news/home/20200217005332/en/Dean-Foods-Enters-Asset-Purchase-Agreement-Dairy

 

Guess: This bid is likely to reach the finish line.

Potential conclusion: Part of the value for the deal comes from the very special position where DFA stands in the supply logistics chain: they need a large post-petition newco-Dean in order for their members to move their milk inventories. Persistent excess production may lead to further restructuring down the line.

 

To some degree off-the-cuff value for the fulcrum security (2023 senior unsecured notes), all numbers in millions and many assumptions held (feel free if interested)

 

-Proceeds for the levels above the fulcrum (unsecured)

425 (from DFA for 76% of the production facilities)

+ 100 (for the rest of the fixed assets and related inventory, assuming a 30-35% recovery)

+ 37 (cash + cash equivalent on hand)

+ 458 (pre-petition AR, 90% recovery)

-  162 (secured revolver debt)

-  256 (receivables securitization facility)

-  40 (BK costs and related, estimate)

-  150 (higher priority employee related costs from accrued expenses, this is a +/- estimate)

= 412 left for other unsecured creditors

 

I assume here that the ‘senior’ unsecured debt could try to define a higher priority category on their own but that does not seem likely IMO especially with DFA forming a significant portion of the pre-petition accounts payables and having incentives to keep a level playing field for the unsecured category

 

-Remaining unsecured claims

700 senior unsecured bonds

+  446 accounts payables and accrued expenses - 150 mentioned above

+  40 (pension termination claim for defined benefits plan (assuming higher discount rate in 2019, no contribution, with funded status going from 95% to 85%)

+  260 (withdrawal liability from the multiemployer plans, wild estimate here because disclosure is limited with the various plans being “critical and declining” and “endangered”

= 1446

 

412/1446 ---) 0.28 cents on the dollar (+ or – 10 cents on the dollar is reasonable I guess) for the senior unsecured bonds. That would be lower than what the graduate students suggested but higher than when it traded pre-petition. Some say markets can be efficient.

 

This assumes that the large DIP financing will be covered by the post-petition accounts receivables which is reasonable given the cash flow potential of the underlying business.  This also assumes that no better offers will come for the stalking-horse assets or the remaining assets.

 

@Viking, just in case you’re reading this:

Saputo has been focusing on decreasing capacity in their own territories and I continue to think to thay won’t meddle with the bankruptcy this time around but we’ll have to see. Here’s a link below about the more recent “history”:

https://www.dairyfoods.com/articles/93982-processor-of-the-year-saputo-inc-a-giant-in-more-ways-than-one

Maybe you’ve seen more recent reports about the patriarch who may (allegations) have had connections with people who really meant it when they supplied secured financing (if you haven’t heard, just google up how a request for a license about a dairy factory in New York resulted in disclosure from an investigator collecting the trash from Joe Bonanno and how journalists recently connected some dots and raised some questions). Even if illegal is not the right term, for Dean Foods, the credit rating for the 2015 senior unsecured issue with a coupon at 6.5% is perhaps a critical element if you’re into root cause analysis for the demise of companies.

https://www.moodys.com/research/Moodys-rates-Dean-Foods-700-million-bonds-B2--PR_318972

“Additionally, we expect Dean to balance the interests of its shareholders and creditors in light of its more shareholder friendly financial policies.” 

 

[Viking]

Cigar, fluid milk is such a bad business in the US (so hard to make money). Poor Dean Foods; the poster child of how to run a big company into the ground using debt.

 

Regarding Saputo, thanks for posting the link to Processor of the Year Award. Saputo is a powerhouse. Very well managed, strategic, financially disciplined with a long term focus. It is on my watch list (i was in and out last year for a small gain). It has had to pay up in recent years to establish itself in Australia and Europe. And upgrading systems has been a costly mess. My guess is in another year or two its profitability is going to take another leap. And, yes, i am very aware of the allegations; they have been around for decades. My view is who cares? (I dont). Great Canadian company.