• You will need to login or register before you can post a message. If you already have an Agriville account login by clicking the login icon on the top right corner of the page. If you are a new user you will need to Register.

Announcement

Collapse
No announcement yet.

XL Finances Were Horrific!

Collapse
X
Collapse
 
  • Filter
  • Time
  • Show
Clear All
new posts

    XL Finances Were Horrific!

    Beef recall was likely ‘death knell’ for revenue-starved XL Foods
    By Matt McClure, Calgary Herald October 18, 2012 Comment 5 •Story•Photos ( 1 )
    Brian Nilsson and his brother Lee paid $145 million US to buy the Brooks packing facility and adjacent feedlot and fertilizer operations that made Edmonton-based XL Foods Inc. Canada’s largest domestically owned meat processor.Photograph by: SIMON HAYTER , Canadian PressCALGARY — Just three years ago, Brian and Lee Nilsson paid $145 million US to buy the Brooks packing facility and adjacent feedlot and fertilizer operations that made Edmonton-based XL Foods Inc. Canada’s largest domestically owned meat processor.

    But amid the country’s biggest ever beef recall, the brothers are now handing the keys for their shuttered plant to multinational protein processer JBS USA, and offering to sell those assets, plus a packing plant in Nebraska and two other closed facilities in Calgary and Nampa, Idaho, to the industry giant for just $100 million US.

    As revenue dried up after federal inspectors suspended the licence of the Brooks plant three weeks ago because of concerns it was producing product contaminated with E. coli0157: H7, industry analyst Kevin Grier said Thursday the Nilssons may have had no other option but to walk away.

    “They were definitely not negotiating from a position of strength,” Grier said.

    “The list of potential buyers started and stopped with JBS.”

    As it steps into the breach hoping to get permission from federal inspectors to reopen the plant and kicks the tires on a potential purchase of XL Foods’ assets, JBS was at pains in its news release to say it won’t cover any of the red ink in which the Nilssons may now be drowning.

    “Under no scenario will JBS USA assume any of XL Food’s debt or liabilities,” the release said.

    While it is difficult to get a full picture of the Nilsson’s current finances because they are a private company, land titles and corporate records show the brothers took on substantial debt when they attempted to swallow the massive Brooks operations from another industry giant, Tyson Foods, in early 2009.

    To finance the purchase, a consortium of lenders headed by HSBC Bank Canada gave XL Foods a $225-million line of credit at an interest rate of 25 per cent.

    A Vancouver-based company that shares the same corporate address as a plant owned by meat renderer West Coast Reduction Ltd. also extended a $35-million mortgage to finance the purchase. A West Coast Reduction official refused to confirm the company was the source of the funds, but Ridley Bestwick did say the company purchased offal and other products from XL Foods and rendered them at its plants across Western Canada.

    As part of its 2009 purchase deal with Tyson, XL Foods paid $55.5 million in cash and another $51 million last March. The Arkansas-based company still holds $24 million in XL Food’s preferred stock that is redeemable through March 2014.

    Around the time it had to make the 2011 payment to Tyson, the Nilssons pledged their 75,000-head feedlot operation and other lands near Brooks as security on a $18-million mortgage from Metropolitan Life Insurance Co. at a rate 4.65 per cent and a $20-million loan from Bank of Nova Scotia at a rate of prime plus 10 percentage points.

    Farm Credit Canada, a federal Crown corporation, is now on the hook for Metropolitan’s loan to XL Foods, having purchased the life insurer’s entire agricultural loan portfolio just days before the company’s E.coli problems become public.

    While all the loans and mortages are currently listed on land titles, it’s unclear how much the Nilssons owed banks and other companies.

    Tyson’s financial reports show the Brooks operations had gross sales of approximately $1.3 billion US during the year before the sale, but a pre-tax profit margin of just 4.3 per cent in the months before it traded hands.

    Grier, who works for the George Morris Centre, an agriculture economic research institute in Guelph, Ont., said his analysis of prices for cattle and the meat packers produce suggest the XL Foods probably did well in the first two years after they purchased the Brooks plant, but he expects that since then the Nilsson brothers may have been losing money.

    “I think they probably had two good years, but as the supply of cattle became tighter they probably had to pay more than they would have liked to,” he said.

    While the Nilssons’ vertical integration through their ownership of feedlots and auction marts around Alberta and Saskatchewan may have insulated them somewhat from this rise in cattle prices, Grier said they were also being hit by a high Canadian dollar that made their meat more expensive in the key U.S. market.

    When American authorities closed the border to meat from the Brooks plant and the Canadian Food Inspection Agency pulled the facility’s operating licence last month, Grier said it was likely the company’s death knell.

    CFIA isued a statement today saying all its decisions regarding recalls continue to be based on scientific evidence and a precautionary approach to protect consumers.

    “Time will tell where the responsibility lies for contaminated product reaching the market, but millions have been lost by XL Foods and the entire industry in a recall that became a debacle,” he said.

    Grier questioned whether the decision to recall whole cuts like steaks and roasts, which are normally cooked to a temperature that would kill any bacteria on the surface, was necessary to protect public health or if it was really a voluntary recall by the company.

    “That seemed like a typical cover your ass response by CFIA, to do everything possible after the fact to avoid any blame.” he said.

    “To their credit, the Nilssons didn’t walk away. They kept paying their workers and they tried to work with the inspectors to get the plant back open.”

    © Copyright (c) The Calgary Herald

    #2
    How could ANYONE get into trouble with a 225
    million dollar line of credit and a 25% interest
    rate? (major sark)

    Comment


      #3
      And how about that Bank of Nova Scotia loan at prime plus 10%? Sounds like the banksters had these guys in their clutches for a long time?
      All the politicians and cattle organizations are falling all over themselves praising JBS as a world class packer. What was Tyson...chopped liver? They couldn't make it....we forget they were going to shut the plant down before Nilssons bought them out? At the time Tyson stated very clearly there weren't enough cattle to keep operating.....how has that changed?

      JBS had to be bailed out by the government of Brazil....who in fact own 1/3 of the company. So now any private packer has to compete with the Brazil government?

      Comment


        #4
        Why would NBI pay so much for a plant that was
        going to be shut down???

        Capitalization Kills

        Over Paid, over leveraged, hosed by the bands.

        Comment


          #5
          Hosed by the banks.

          Comment


            #6
            Well Allfarmer, that's why they call them "banksters"? You should always keep this in mind when you go in for your "friendly" loan?
            They got Nilssons brothers in a situation where they could really stick it to them!
            I get a big laugh everytime someone says "the bank is my partner....or part of my team".....yea, like Don Corleone!
            Bankster are always there with cheap money when times are good......when things go south.....they are there with the hammer wanting their pound of flesh!
            A good rule in life is avoid this scum whenever you can. It truly is.

            Comment


              #7
              If they were getting rates like that they must have been over extended on security.
              You have to wonder who will be operating the rest of the empire.
              Smaller cattle supply and self inflicted damage on the reputation won't make auction markets real valuable.
              Big changes have to be coming across this industry.

              Comment

              • Reply to this Thread
              • Return to Topic List
              Working...