Country Fresh Holding Company Inc. – Foodservice Company Files for Chapter 11 with $119 Million in Debt Funded Less Than Two Years After $300 Million Out-of-Court Restructuring; Stellex Capital Agrees to Serve as Workhorse with $55M Cash/Debt Opening Offer | Daily updates from bankrupt companies

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February 15, 2021 – Country Fresh Holding Company Inc. and 16 affiliated debtors (dba Fresh Food Group; “Country Fresh” or the “Debtors”) filed for Chapter 11 protection in the U.S. Southern District Bankruptcy Court of Texas, main case number 21-30574 (Judge Isgur). Debtors, “a leading full-service provider of branded and private label offerings” to the foodservice industry, are represented by John Melko of Foley & Lardner LLP. Other assignments authorized by the Board of Directors include (i) Ankura Consulting Group, LLC (“Ankura”) as financial advisors and to provide the Director of Restructuring, (ii) Stout Risius Ross, LLC (“Stout “) as investment bankers and (iii) Epiq Corporate Restructuring as claims agent.

On filing, Debtors note between 200 and 1,000 creditors; assets estimated between $100.0 million and $500.0 million; and liabilities estimated between $100.0 million and $500.0 million ($119.0 million of funded debt). Documents filed with the Court list the three main unsecured creditors of the debtors as (i) Victory Packaging (trade debt of $919,000), (ii) D6 Inc (trade debt of $886,000) and (iii) Pacific Sales – (trade debt of $877,000) . Debtors’ top 30 unsecured creditors have trade receivables over $165,000.

It is expected that affiliates TGF Acquisition Parents Ltd., Tiffany Gate Foods Inc. and Sun Rich Fresh Foods Inc. (collectively, the “Canadian Debtors”, not otherwise included in the Chapter 11 Bankruptcy Proceedings) will commence proceedings in Canada under the Companies’ Creditors Arrangement Act (the “CCAA”).

As described below, in 2019 the debtors completed an out-of-court restructuring which (i) saw $300.0 million in debt taken private, with then first and second lien lenders taking the property to 100% of debtors, and (ii) the exit of Country Fresh’s sponsor at the time, private equity firm Kainos Capital.

Proposal for the sale of assets

The Debtors entered into an asset purchase agreement (the “Purchase Agreement”) with (i) Stellex/CF Buyer (US) LLC (the “US Buyer”) and (ii) Stellex/CF Buyer ( CN) Inc. (the “Canadian Buyer” and, together with the US Buyer, the “Buyers”), whereupon the Debtors have agreed, subject to the completion of an auction/sale process pursuant to Section 363, to sell all of their assets to the Buyers for consideration including $30.0 million in cash and a $25.0 million note.

Buyers are affiliated with a global mid-market private equity firm Stellex Capital Management (“Stellax”).

DIP financing

The debtors have commitments for $13,416,000 (including upfront costs) of debtor in possession (“DIP”) financing, which will be provided by a subset of their pre-petition lenders.

Purposes of Chapter 11 Filings

The Marotta Statement (defined below) states: “The purpose of these bankruptcy filings is to allow debtors to stabilize their operations under the aegis of the bankruptcy court and the CCAA court and to explore their options for a possible reorganization through a plan process or sale under Section 363 of the Bankruptcy Code and Section 36 of the CCAA. »

Events leading up to Chapter 11 filing

In a statement supporting the Chapter 11 filing (the “Marotta Statement”), Stephen Marotta, Director of Accounts Receivable Restructuring (via Ankura), detailed the events leading up to Country Fresh’s Chapter 11 filing. . Marotta’s statement reads, “Beginning in March 2020, federal, state and local governments began responding to the pandemic by enacting regulations restricting activities or closing non-essential businesses outright, including restaurants. The Company has been deemed an essential business in all jurisdictions in which it operates, which has enabled it to continue doing business.

Unfortunately, as schools transitioned to virtual learning (a significant issue for the Company given its partnership with New York schools, including a program that provides apples to students in New York schools), restaurants closed or drastically reduced operations, consumers began to avoid the fresh produce sections of grocery stores and similar stores, and, most importantly, large social and other gatherings began to be canceled due to from provincial and local state regulations and consumer preferences, the company’s sales fell sharply. As a result, the company was forced to idle its Reading, Pennsylvania facility and furlough employees based there. The company’s other facilities across the country have seen their utilization rates begin to decline, and input prices from fresh food and vegetable vendors have increased as those vendors grapple with their own issues.

To make matters worse, in October 2020 the FDA closed the Dallas facility due to the presence of listeria. on any of the surfaces of the installation found during a routine inspection of the installation by regulatory agencies. The Company has since taken all appropriate steps to remedy the situation and comply with applicable FDA regulations, pass all necessary tests and reopen the facility for production. The facility reopened in January 2021, but the production capacity lost during its closure has further reduced the Company’s revenues, and debtors have not yet been able to realize the increase in production capacity.

Pre-Request Indebtedness

As of February 14, 2021 and excluding capitalized interest, Debtors’ indebtedness included:

FN The $5.6 million bridge financing occurred through an amendment to the senior secured facility and bears the same terms.

Debtors also have a $5.8 million PPP loan.

Company history

The Fresh Food Group began in 1999 with the formation of Country Fresh, LLC, headquartered in The Woodlands, Texas, where it remains today. Initially, Country Fresh focused on fresh cut fruits, including apples, which continue to be a staple of the company’s product offerings, and vegetables in a variety of blends, sizes and options. packaging. From its inception in 1999 until 2017, Country Fresh operated a single processing facility in Houston, Texas near its corporate headquarters.

In 2017, Kainos Capital (“Kainos”) acquired Country Fresh, LLC and its affiliated entities operating under the Country Fresh brand and, shortly thereafter, acquired entities operating under the Sun Rich Fresh Foods brand in the United States and Canada. The following year, Kainos acquired Canadian entities operating under the Tiffany Gate brand and brought all the companies together to create the Fresh Food Group. The combined Fresh Food Group has 11 processing facilities, 8 in the United States and 3 in Canada, as discussed in more detail below.

In 2019, the Company faced significant cash and other economic pressures which caused its (at the time) existing secured lenders to take hasty action. On April 29, 2019, the Company executed a debt restructuring and swap transaction to deleverage its balance sheet and convert certain long-term obligations (described below) to its secured lenders into equity. Through the 2019 exchange, the lenders (who continue to be major stakeholders in the company) took more than $300 million of senior secured debt private.

Following this restructuring, Kainos no longer owned the company; rather, the Company’s senior and junior lender groups took ownership of 95% and 5%respectively, common shares of the Company in exchange for the settlement of a large secured debt.

About debtors

According to Debtors“The Fresh Food Group (FFG) provides full-service fresh produce solutions for retail, foodservice, club and convenience stores, including merchandising and category support. We proudly operate eight facilities in the United States and three in Canada. We are the leading suppliers of fresh cut fruits and vegetables, snack products and home meal replacement solutions.”

Marotta’s statement adds, “Generally referred to as ‘Fresh Food Group’, a leading full-service provider of branded and private label products of fresh-cut fruits and vegetables, ready-to-go meals and meal kits, behind-the-glass salads, snacks and bulk food ingredients/components to supermarkets, club stores, convenience stores, industrial and foodservice customers in the United States and Canada. focused exclusively on fresh cut fruits and vegetables, and recently expanded its product offering to vacuum and kettle cooking of chicken, fish and beef dishes as well as pasta. ready-to-retail fresh meal kits and ready-to-go meals continue to grow alongside its core offerings of fresh cut fruits and vegetables and fresh snacking solutions

Company structure flowchart

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