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12 November 2019 by jbchevrel

Dean Foods Co (DF), the largest dairy company in the US, has today announced that it has initiated voluntary Chapter 11 reorganization proceedings in the Southern District of Texas. DF intends to use this process to protect and support its ongoing business operations and address debt and unfunded pension obligations while it works toward an orderly and efficient sale of the assets. On that matter, DF announced that it is engaged in advanced discussions with Dairy Farmers of America, Inc. (DFA) regarding a potential sale of substantially all assets of DF. The CDS widened about 10 points to stabilize in the area of 80 points upfront. DF listed $10b assets and liabilities in court papers filed in Houston, and said it has commitments for $850m in bankruptcy financing from existing lenders. The Central States Southeast & Southwest Areas Pension Plan is listed as the company’s largest unsecured creditor, with a $722.4m claim alongside DF’s $700m unsecured notes that mature in 2023. DF’s bankruptcy was the “clearest option” for addressing the pension and debt load, according to Wells Fargo analyst. DF can keep operating while it works on a plan to pay creditors and turn things around. Back in August, at last results release, DF was reporting the 4th consecutive quarterly net loss, dampening previous promise of positive FCF, due to losses and unfavorable working capital changes (inventory builds). Top line was $1.84b EBITDA was $5.4m. Back in August, although huge co. leverage prompted 5y def. proba. being priced at >90% the horizon is less than half, the 1s5s paying c25% for c50% on 5s. DF blamed retailers for basically discounting milk too much, making DF’s core margin thinner and thinner, squeezed between lower retail prices and inflationary pressures in the dairy commodity market. The fact that Walmart Inc. (WMT) built its own milk plant didn’t help. The fact that dairy beverages are less in vogue among consumers nowadays didn’t help either, with increased competition from alternative milks (ex: vegetal-based like almond, oat, soy, coconut). The consumption of cow’s milk in the US alone has fallen -40% since 1970. Sales of alternative (non dairy) milks soared +30% since 2011.