Dallas-based Borden Dairy Co. filed for Chapter 11 bankruptcy protection Jan. 5, blaming rising raw milk costs, reduced milk consumption and increased competition among non-dairy alternatives, including almond, coconut and soy milk.
Borden is the second major dairy producer to file Chapter 11 in the past two months after Dean Foods filed for bankruptcy protection in November.
Despite the filing, the company said in a news release it will be business as usual under the court’s supervision.
In its filing with the U.S. Bankruptcy Court for the District of Delaware, Borden lists assets and liabilities as between $100 million and $500 million. It states it has 5,001 to 10,000 creditors.
Borden and its 17 affiliates have been consolidated into one bankruptcy petition.
The Central States Pension Fund is Borden’s largest unsecured creditor and is owed nearly $33.2 million after a settlement was reached when the milk producer withdrew from the plan in 2014. Its debts include nearly $256 million in secured loans.
Borden operates a fleet of approximately 2,800 refrigerated trucks or trailers that it owns or leases, according to the bankruptcy filing. The company has about 3,300 employees.
Borden’s trucks make approximately 54,000 service calls each week through its “direct-to-store delivery” (DSD) system and operates one of the most extensive refrigerated DSD systems in the U.S., according to court documents.
“Despite our numerous achievements during the past 18 months, the company continues to be impacted by the rising cost of raw milk and market challenges facing the dairy industry,” Tony Sarsam, chief executive of Borden, said in the release. “These challenges have contributed to making our current level of debt unsustainable.”
The price of conventional raw milk has risen 27% since January 2019.
Over the past few months, Borden has been in talks with its lenders to “evaluate a range of potential strategic plans for the company,” Sarsam said. “Ultimately, we determined that the best way to protect the company, for the benefit of all stakeholders, is to reorganize through this court-supervised process.”
The 163-year-old company produces more than 35 products. It operates 12 milk-processing plants and around 75 distribution centers that produce and distribute approximately 500 million gallons of milk annually in the U.S., Borden said.
Some of Borden’s largest customers include Walmart, Sam’s Club, Food Lion and Kroger.
Borden reported net sales of nearly $1.2 billion in 2018. Since January 2019, the company reported income loss of around $22.3 million from operations and a total net income loss of $42.2 million, according to court documents.
Borden’s struggling financial performance over the past two years is “directly correlated to the milk processing industry’s highly competitive nature, rapidly-changing industry landscape and dynamic retail environment,” Jason Monaco, chief financial officer of Borden, said in a court filing Jan. 6.
Since 2015, U.S. consumption of dairy milk has declined 6%, Monaco said. Over the past 18 months, 2,730 dairy farms have gone out of business.
In recent years, dairy products have begun to compete with other replacement non-dairy nutritional products, like almond, soy and coconut beverages, for consumer sales, which has contributed to demand decreases, Monaco said.
Prior to the bankruptcy filing, Borden reached a temporary agreement with its creditors as it explored out-of-court restructuring alternatives, but a forbearance agreement Borden reached with its lenders ended on Jan. 6.
“Unfortunately, the parties were unable to finalize and implement an out-of-court restructuring by the forbearance termination date, and the lenders were unwilling to extend such date further and provide necessary liquidity,” Monaco said in the court filing.
Dave Tildern
Just imagine how many other shippers will go under if interest rates actually went UP for a change instead of down again. Most big shippers are swimming in huge piles of debt as are many large brokers and carriers. The tsunami of bankruptcies will be absolutely breathtaking to all that are watching.
Debt is the devil’s surprise for us all. Just watch – and know who you are dealing with so they don’t bring you down.
Question number one should always be “are you profitable” quickly followed by “how much debt is on your balance sheet.”
Ask your customers AND your vendors before it’s too late.