Tyson Foods puts up the farm for access to cash

The good news is that Springdale-based Tyson Foods Inc. was able to secure future access to credit. The bad news is that the company was forced to put up almost the entire company as collateral.

An inability to secure financing agreements recently pushed Pittsburg, Texas-based Pilgrim’s Pride — the nation’s largest poultry processor — in reorganization bankruptcy.

Troubled credit markets, a glut of chicken in the marketplace, high prices for feed and fuel and reduced consumer spending are squeezing poultry producers large and small.

Tyson Foods Inc. reported in early November that its net income for fiscal year 2008 was $86 million, down 67.9 percent from $268 million in fiscal 2007. The Springdale-based company posted total revenue for fiscal 2008 of $26.86 billion, up about 4 percent from $25.72 billion in fiscal 2007.

Prospects for Tyson Food in fiscal 2009 don’t offer hope for improvement. Goldman Sachs analyst Ken Goldman lowered fiscal 2009 earnings estimates for Tyson Foods by 49 percent, Sanderson Farms by 66 percent and Pilgrim’s Pride by 97 percent.

Now, according to the Tyson Foods filings made public Wednesday (Dec. 17) and an Associated Press report, the company has been forced to amend a previous credit agreement and give banks more collateral for access to cash. The federal filing by Tyson Foods notes that the company and its subsidiaries “pledge substantially all of their assets to secure performance of the company’s obligations under the credit agreement.”

It’s not uncommon for companies in this industry to put themselves up as collateral when they enter a down cycle, Barclays Capital agribusiness analyst Christopher Bledsoe told the AP. He said it was good news the company was able to get the credit in this environment.

The key to the amended agreement, however, is that Tyson Foods obtains more flexibility in its debt ratio covenants — how much debt the company can carry relative to earnings before interest, taxes and amortization — for the next two fiscal quarters. After that, the ratio drops lower than it is now, meaning the company is betting the farm — almost literally — on an improving market in the global meat sector.

Last month, Moody’s Investors Service downgraded Tyson Foods’ credit rating on concerns that the company’s chicken business will lose more money and that its acquisition strategy will limit its available cash.