Oaktree set to take over bankrupt Pierre Foods

Oaktree Capital Management, which closed the largest ever distressed debt fund in May on $10.9 billion, is positioned to take control of bankrupt food products provider Pierre Foods if a bankruptcy court approves the company’s reorganisation plan.

Los Angeles-based Oaktree, which is financing the company’s restructuring plan, has acquired nearly all the company’s junk bonds and bank loans for less than $200 million, according to a report in the Wall Street Journal. Pierre said in a press release Oaktree is the company’s largest creditor but it is unclear how much Oaktree is owed. 

Private equity firm Madison Dearborn Capital Partners bought Pierre in 2004 for about $422 million.

Pierre submitted its plan of reorganisation 29 September that calls for Oaktree to take control of the

Pierre Foods: Bought on the cheap

company once it emerges from bankruptcy. The company's plan calls for the conversion of $100 million debt to equity swap. A portion of Pierre’s debt will be restructured and the company will be left with a more manageable debt load of $147 million. General unsecured creditors will recover about 12 cents for every dollar they are owed, and current shareholders will be wiped out. A hearing on the reorganisation plan is set for December.

Oaktree and Madison did not return calls for comment.

Pierre filed for bankruptcy in July under a debt load that grew too heavy after the company made two add-on acquisitions in 2006. The company bought Clovervale Farms and Zartic, both providers of pre-wrapped food items, which grew the company’s debt by about $124 million. 

As the economy began its tailspin amid the burgeoning housing crisis, Pierre said its debt became too much to bear. Energy and raw materials prices skyrocketed, Pierre’s profitability declined and the firm started having trouble meeting its debt obligations.

Howard Marks-led Oaktree provided a $35 million debtor-in-possession loan that allowed Pierre to continue operating in Chapter 11 protection and gave the firm control over the bankruptcy process.

Pierre is one of 34 private equity-backed companies that have filed for bankruptcy in 2008. Others firms that have had portfolio company bankruptcies include Sun Capital Partners, which had five, and Apollo Global Management, Clayton, Dubilier & Rice and MatlinPatterson Global Advisors, which had one each.

Madison Dearborn-backed Hines Horticulture filed for bankruptcy in August after failing to obtain an emergency capital infusion. Madison bought Hines in 1995 for $205 million.

Oaktree, which manages more than $58 billion as of June, entered a partnership this month with the W229 trillion (€120 billion; $165 billion) Korea National Pension Service to explore investment opportunities in Korea.