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on June 23, 2009

Pilgrim’s Pride seeks options short of bankruptcy

The company is working on a business plan that it will present to lenders October 28.

As Pilgrim’s Pride struggles to stay afloat financially, and works on a business plan to present to its creditors by the end of this month, the company indicated last week that it does not plan to file for bankruptcy protection.

On Friday, the Wall Street Journal quoted Pilgrim’s Pride Vice President Gary Rhodes as saying, “We don’t believe that a bankruptcy filing would be in anyone’s best interest, certainly not for our lenders, nor for our company or investors.”

Nonetheless, negative concerns about whether the company can remain solvent sent Pilgrim’s Pride shares down 23 percent on Friday to close at $2.47. The company has until October 28 to negotiate a deal with lenders. Also coming due next month is a $25.7 million bond payment.

The October 28 deadline is part of an agreement the company reached last month with its lenders to temporarily waive the fixed-charge coverage ratio covenant under its credit facilities. The lenders also agreed to continue to provide liquidity during the 30-day period.

It has been reported that Pilgrim’s is in talks with potential investors, including hedge funds and private equity groups. The WSJ reported that Pilgrim’s is also analyzing the potential sale of assets, including its Mexican operations, some U.S. poultry plants and certain real estate. The report said no decisions have been made about such moves. Two potential suitors named in the report are Tyson Foods and the Mexican poultry company Industrias Bachoco SA.

Meantime, Sanderson Farms has filed a shelf registration with the Securities and Exchange Commission enabling it to sell as much as $1 billion of common or preferred stock to raise money for acquisitions should assets in the poultry industry become available.

“Our purpose with this filing is to make available to the company shares that could be used in connection with future acquisitions and other strategic opportunities as they may present themselves. We have no current agreements, plans or discussions to offer any of the registered shares for sale. Our purpose does not include raising cash solely for liquidity, as the company’s financial position remains strong," said Joe F. Sanderson, Jr., chairman and chief executive officer of Sanderson Farms.

This summer Pilgrim’s locked in feed prices while corn was trading at around $8 a bushel – one reason the company’s feed grain prices will increase by $900 million this year. But now, the credit crisis has resulted in a drop in commodity prices, including corn. With corn and soybean prices now about 50 percent lower than their summer highs, the company’s profit margins should improve.

At the same time, Pilgrim’s – like all chicken producers – must now deal with low chicken prices and an economic situation hurting demand for all meats. Other hurdles facing the company include its heavy debt load and a lack of liquidity in the credit markets.

Pilgrim’s Pride posted a $53 million fiscal third-quarter loss. It expects to report a “significant loss” for its fourth quarter.

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