Allens bidders argue case to judge

A federal bankruptcy judge on Monday said he’d make a quick ruling on the bidding procedure, date for a sale hearing and the selection of Seneca Foods Corp. as the initial bidder in the sale of Siloam Springs-based Allens Inc.

During the three-hour hearing, part of Allens’ bankruptcy proceeding, Judge Ben Barry heard objections from second-lien secured parties, who argued the breakup fees to be paid to New York-based Seneca if it were outbid were too high and the fee structure put undue pressure on the second-lien parties, which hope to submit their own bids for Allens.

Second-lien holders have debts that are subordinate to other more senior debt, often issued against the same collateral or a portion of the same collateral.

The second-lien parties did lift their objections to setting a Jan. 27 deadline for bids, the auction Feb 3 and a sale hearing Feb. 10.

In late October, Allens filed for Chapter 11 bankruptcy protection in U.S. Bankruptcy Court for the Western District of Arkansas. Chapter 11 allows for a business to continue operating and reorganize its debts under court supervision. Court filings show that Allens owes its primary lenders $114.36 million and its secondary lenders $65.6 million and has between $100 million and $500 million in assets.

In mid-December, Seneca Foods made a $148 million offer to buy the bankrupt frozen- and canned-food company, setting the initial bid for the company’s assets, a role known as the stalking horse bidder, which must be approved by the court. The agreement would allow Sen-eca to acquire all three Allens plants, subject to some working capital adjustments and the assumption of certain liabilities. Allens had considered a merger with Seneca Foods in September 2011, but the deal was later abandoned.

Under the proposed structure, a company that outbids Seneca for some or all of Allens’ assets will pay its individual share of a $4.5 million breakup fee in cash, and Seneca will also have up to $1 million of its expenses reimbursed by the winning bidder or bidders. Buyers often ask for breakup fees if a seller has the option to obtain offers from other interested parties.

Maria DiConza of Greenberg Traurig of New York, representing Allens, said the Seneca deal is a firm offer and that the company was the only viable stalking horse bidder. She said in addition to the assets Seneca has bid on, there are $32 million of other assets the company still can sell to satisfy outstanding debts.

She said the breakup fees are reasonable, and the sale of the company should be expedited since Allen’s new owner needed to be in a position to make deals for the next year as soon as possible. She said waiting will devalue the company’s assets, and lingering in bankruptcy will result in harm to Allens overall.

Scott K. Rutsky, of New York-based Proskauer Rose LLP, representing the second-lien parties, said they don’t object to Seneca as the stalking horse bidder but think the breakup fees are excessive. He added that a credit bid by the second-lien parties should not be subject to the fee, since it forces the creditors to to pay an additional cash component if they submit a winning bid.

Andrew Torgove, managing director of Lazard Middle Market, a multinational advisory and asset management firm employed by Allens, testified Monday that therewas wide interest in Allens from other strategic bidders in the industry. He said incentives like the breakup fee are common for stalking horse bidders since they assumed substantial risk by making the first bid, and he was expecting a robust auction for Allens’ assets.

Seneca Foods has said if its bid is successful, Allens’ assets will fit with the company’s long-term growth plans of expanding its line of canned vegetables to include sweet potatoes and Southern vegetables and broadening its dry beans and spinach offerings.

Seneca Foods has plants in California, Idaho, Illinois, Minnesota, New York, Pennsylvania, Washington and Wisconsin. Its brands include Libby’s, Libby’s Frozen, Aunt Nellie’s and Seneca Snacks. The company employs more than 10,000 regular and seasonal employees, according to its annual report.

Allens employs nearly 1,200 people across all of its U.S. operations, according toa court filing. In addition to its Siloam Springs plant and other Arkansas holdings, the company has operations in Georgia, North Carolina and Wisconsin.