Reorganization and refinancing of a family farm
A previous client recommended us to the owner of a 2,000 acre organic produce farm in northern Colorado. The farm's primary secured lender had frozen its bank accounts and credit line several weeks before the engagement began. Over the course of the next month and a half, a thorough analysis of farming operations was undertaken, a daily cash forecast for the remainder of the year was completed that projected the cash that would be required to fund farming operations for the year. Multiple year projections were also prepared for the purpose of developing longer term funding requirements and to project the profitability might be expected from future farming operations. These were used to support the company's plan of reorganization.
It quickly became obvious that the only way in which financing for the year could be obtained was if it was done as Debtor in Possession financing. Prior to filing a chapter 11 proceeding in the District of Colorado approximately $1,200,000 in DIP financing was arranged with several participants, not including the primary secured lender.
The bankruptcy proceeding lasted through two full crop cycles during the period from mid-April, 2007 through the confirmation of a plan of reorganization in late January 2009. During that time the crop plan was substantially revised, personnel changes were made, a second round of DIP crop input financing was obtained and cash was micro managed on a daily basis.
The plan of reorganization that was approved by the bankruptcy court provided for statutory payouts of priority tax claims, lengthy payouts to the secured lenders, one of which had made an election under section 1111 (b) (2) of bankruptcy code to have its claim treated as fully secured. Unsecured creditors were provided with a flexible payout plan under which the amount to be distributed each year is dependent on cash generated from farming operations for the year after deducting a working capital carve-out. Under the plan, the unsecured creditors will participate in a flexible payout which should eventually amount to 50% of their total claims.