The aggressive expansion of Paraguay-based Concepción Group, owner of Brazilian meatpacker BMG Foods, is taking a heavy toll.
With liquidity under pressure, the company failed to make an interest payment this month on a credit facility provided by Bank of America, according to a Bloomberg report.
The missed payment marks the beginning of a financial restructuring process that could ultimately lead to court-supervised debt protection proceedings, including in Brazil, according to people familiar with the matter.
The group’s financial troubles have fueled complaints from cattle suppliers and service providers awaiting payments. Chinese importers that buy beef from Concepción’s Bolivian operations have also reported delays in container shipments.
To address the crisis, Concepción has hired Brazilian advisory firm Pantalica Partners, which specializes in debt restructurings.
The company is also working with legal advisers across its operating jurisdictions, including Linklaters LLP in the United States; Diamantino Advogados Associados and Guedes & Manocchio Advogados Associados in Brazil; Ovelar Abogados in Paraguay; and Dentons Guevara & Gutiérrez in Bolivia.
“The goal is to engage with the various creditor groups and reach a comprehensive solution regarding the company’s obligations across all relevant jurisdictions,” Concepción said in a statement distributed in Paraguay.
The company is still evaluating the best path for the restructuring. Both in-court and out-of-court restructuring alternatives are under consideration, according to a person familiar with the discussions.
As of December, Concepción reported net debt of $820 million. With EBITDA of just $120 million, leverage exceeded 4.3 times, according to the company’s latest financial statements.
Bloomberg reported that the group faces $65 million in debt maturities between June and July. The amount represents a significant challenge for a company that ended last year with only $23.1 million in cash.
Last month, former BMG Chief Executive Officer Renan Lima told Bloomberg that the company was considering the sale of its pork operations in Brazil and Paraguay — where it recently inaugurated a new processing plant — in an effort to strengthen its balance sheet. At the time, he acknowledged that the group had expanded too quickly.
In the United States, where Concepción issued $300 million in bonds, prices have collapsed in recent months. The notes are now trading below 20 cents on the dollar, compared with about 75 cents less than a year ago.
Concepción’s difficulties are largely tied to its fast expansion, particularly in Brazil, where it leased several slaughterhouses and briefly became one of the country’s four largest beef processors. The company also made significant investments in pork production.
That growth was largely financed with third-party working capital facilities, which has became difficult to sustain amid margin pressure in the beef industry.
BMG Foods has already begun retreating from part of that expansion, returning several leased plants in Brazil, as previously reported by The AgriBiz.
According to its financial statements, plants that were closed or returned generated $391 million in revenue last year. The group posted total revenue of $2.1 billion during the period.
