A Pilgrim’s Pride bankruptcy may help rivals

Any bankruptcy filing by Pilgrim’s Pride Corp., the largest U. S. chicken producer, could support higher pricing for the entire poultry industry as capacity is taken out, Fitch Rating said Nov. 18.

A Pilgrim’s Pride bankruptcy looks “pretty inevitable,” given that the company has hired a restructuring adviser and is exercising a grace period for a missed interest payment, said Fitch analyst Carla Norfleet Taylor, speaking at a webcast presentation. The company’s bonds are also trading as though the market is expecting a bankruptcy, she said.

Pilgrim’s Pride had no immediate comment, but previously had said, “We continue to believe that Chapter 11 is not in anyone’s best interest. We continue to work extremely hard on a long-term solution to improve our liquidity.”

It failed to pay $25.7 million interest due on Nov. 3 and is exercising a 30-day grace period for making the payment.

The Pittsburg, Texas-based company has lost money for nearly a year due to high feed costs, low chicken prices and debt obligations. It has also needed waivers twice in recent months so as not to violate covenants on its debt.

With 32 processing plants in the United States and three in Mexico, the company had $7.6 billion in sales in fiscal 2007.

If it files, the bankruptcy could be the most significant structural change in the industry, helping Tyson Foods and other surviving players over the long term, Taylor said.

In the near term, Fitch said it anticipates a poor credit environment for many commodity food companies as high debt and weak cash flow wreak havoc on the industry.

The potential for lower exports to Russia is another concern, Taylor said.

Russian news agencies in September quoted Agriculture Minister Alexei Gordeyev as saying the country may cut poultry import quotas by up to 300,000 tonnes next year. Quotas provided for imports of 1.21 million tonnes of poultry meat into Russia this year, mostly from the United States.

Taylor also said bankruptcy risk is likely to increase in the restaurant industry in 2009 as companies grapple with high food costs and weaker consumer spending.

Weakness that started in full-service restaurants is spreading to quick-service companies as pressures build on the consumer, Taylor said.

On the positive side, bankruptcy-related closures should reduce the number of restaurants, which will help the industry when consumer spending recovers, she said.

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