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Eurofresh to emerge from bankruptcy in September

by Tim Linden | July 15, 2009
Eurofresh Inc., a leader in greenhouse tomato production, has submitted a reorganization plan to the courts and expects to emerge from bankruptcy protection in September, according to Brian McLaughlin, the firm's chief financial officer.

Mr. McLaughlin said that the vast majority of the firm's major bondholders have agreed to a restructuring plan that will require an additional investment by at least two key players, including original owner and founder Johan van den Berg, who still owns about one-third of the company.

Mr. McLaughlin said that the end result is that the firm will cut its debt load and continue to be a very strong player in the greenhouse tomato business.

The Eurofresh executive said that the company has continued to operate as usual through the bankruptcy proceedings, which were filed in May. In fact, he said that Eurofresh is in a very good cash position and did not need to secure debtor-in-possession financing during the bankruptcy proceedings.

Debtor-in-possession finan_cing is almost always needed during bankruptcy reorganization, but Mr. McLaughlin explained that Eurofresh's financial issues revolved around long-term bondholder payments rather than operating expenses.

He said that problems arose when Eurofresh could not meet its bondholder obligations because of a tomato virus, which caused the firm to alter its business model and reduce its previously very high percentage of greenhouse utilization.

Mr. McLaughlin explained that Eurofresh has long operated with a 97 percent greenhouse utilization as it used an interplanting technique to eliminate the down time for any individual greenhouse room. As a plant neared the end of its life cycle, another plant was growing up next to it to continue full production for that space. However, a tomato virus swept through the industry several years ago causing Eurofresh to reduce the use of interplanting and clean out most greenhouse rooms before replanting. This reduced the greenhouse utilization to about 82 percent, Mr. McLaughlin said.

That, in turn, reduced the company's profit margin to a still very robust figure "in the teens" but much less than the 30 percent or so that its bondholder debt portfolio was based upon.

Mr. McLaughlin said that about 90 percent of the bonds are in the hands of six large investors but that the other 10 percent are spread out among literally hundreds of individuals and small investment groups. It requires unanimous consent to change the terms of the bonds without the help of a bankruptcy court, which is why Eurofresh filed in the first place, according to Mr. McLaughlin.

"The bottom line is that we are going to emerge from bankruptcy with half the debt load, a very good profit margin and sufficient cash on hand to run the business," he said.

In fact, Mr. McLaughlin said that Eurofresh is currently looking forward and working on some progressive go-to-market strategies to enhance the tomato category and its industry leadership position.

On another financial front, Eurofresh recently filed a lawsuit against the Cochise (AZ) County tax assessor's office asking for a reduction in its property tax assessment. Mr. McLaughlin said that this will undoubtedly involve many years of negotiations and litigation and is unrelated to the bankruptcy proceedings.

He said that Eurofresh believes it has been unfairly taxed as one of the larger companies and employers in its area and is asking the court for multi-million dollar tax relief.