Madison Dearborn portfolio company files for bankruptcy

Pierre Foods has obtained $35 million of debtor-in-possession financing from distressed debt specialist Oaktree Capital Management to continue operations during restructuring.

Pierre Foods, a Madison Dearborn Partners portfolio company, has filed for voluntary Chapter 11, enabling the company to continue operations while restructuring its debt.

Chicago-based Madison Dearborn purchased Pierre Foods in 2004 through the firm’s $4 billion fourth fund, which closed in 2001. The deal included approximately $140 million in equity, according to a source familiar with the transaction, who noted the investment accounted for only a small portion of the fund.

On 2 June, Pierre Foods said it was in discussion with senior lenders after failing to meet financial covenants under its senior credit facility.

The pre-cooked and ready-to-cook food products manufacturer cited the increased price of raw materials and deteriorating market conditions for the processed food industry as the reasons for failing to meet its financial burden.

“After careful consideration of all available alternatives, the company's board of directors determined that filing for Chapter 11 was a necessary and prudent step that allows us to operate our business without interruption while continuing to implement a debt restructuring in a controlled, court-supervised environment,” Pierre Foods chief executive Norbert Woodhams said in a statement.

Cincinnati, Ohio-based Pierre Foods has taken and will continue to take steps to improve liquidity, conserve cash, optimise profitability and right-size its cost structure, according to the firm.

Oaktree Capital Management, which recently closed the largest-ever distressed debt fund on $10.9 billion, has agreed to provide Pierre Foods with $35 million (€22.1 million) of debtor-in-possession financing. The financing will be used to fund ongoing operations during the Chapter 11 case.

Spokespeople from both Oaktree and Madison Dearborn declined to comment.

Pierre has retained Alvarez & Marsal, a restructuring and corporate advisory firm, to assist the company throughout the restructuring process.

Madison Dearborn’s fifth fund closed on $6.5 billion in 2006 and is targeting $10 billion in its current fundraising effort, according to the Probitas Partner 2008 Private Equity Deskbook.