Country Fresh files bankruptcy with $55 million bid from Stellex

By Sarah Lizee

Olympia, Wash., Feb. 16 – Country Fresh Holding Co. Inc. filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas on Monday.

In 2019, the company completed a debt restructuring and exchange transaction in order to de-leverage its balance sheet and convert some of its long-term obligations to its secured lenders into equity. Through the 2019 exchange, the lenders equitized more than $300 million of senior secured debt.

Following this restructuring, the company’s first- and second-lien lender groups took ownership of 95% and 5%, respectively, of the company’s common stock in exchange for the satisfaction of significant secured debt.

The result was an improvement in the company’s liquidity and debt leverage ratios and improvement of the consolidated balance sheet for the entire company.

However, due to significant economic pressures arising in large part due to the Covid-19 pandemic over the last year as well as additional causes, the company faced significant near-term liquidity and capital-structure challenges throughout 2020, chief restructuring officer Stephen Marotta said in a declaration.

“The demand for the company’s largest product segments – fruit and vegetable trays – declined significantly as federal, state and local governments in the United States reacted to the pandemic, restaurants and businesses closed, schools switched to virtual learning, and consumers began avoiding the fresh food sections of grocery stores and canceling large gatherings,” Marotta said.

This paired with the temporary closure and idling of some of the company’s production facilities, and the labor issues related to the global pandemic, resulted in a significantly constrained liquidity position.

The company determined that a sale of all of its assets in both the United States and Canada is the best course of action under the circumstances.

Stellex Capital Management is serving as stalking horse bidder for the assets, with a purchase price of $30 million in cash and $25 million in a secured note.

In addition, the company is seeking court approval to obtain a $13.42 million senior secured superpriority debtor-in-possession credit facility with some of its pre-bankruptcy lenders and Cortland Capital Market Services LLC as administrative agent and collateral agent.

Country Fresh asked for interim access to $11.5 million of the facility, inclusive of an upfront fee in the form of original issue discount in an amount equal to 4% of each DIP lender’s commitment.

Interest will be either 15% payable in kind monthly or 12.5% payable in cash monthly. There is an additional 2% payable in cash in the event of default.

The facility will mature on the earliest of six months after the petition date, the effective date of a plan, the date the asset sale closes, and the date the loans are accelerated.

The proceeds of the DIP facility will fund the debtors’ operations and administrative expenses during the sale process.

In its petition, the company listed $119 million of total funded debt and under $50,000 of estimated assets.

The Woodlands, Tex.-based company provides fresh-cut fruits and vegetables, ready-to-go meals and meal kits, behind-the-glass salads, snacks and bulk food components. The company filed bankruptcy under Chapter 11 case number 21-30574.

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