AMERRA Capital-backed organic supply chain company Pipeline Foods has filed for bankruptcy and plans sell some or all of its assets.
A lawyer representing Pipeline reportedly told a bankruptcy judge last week at least five parties have shown “considerable interest” in certain assets, though none would sign letters of intent or purchase agreements before Wednesday’s hearing.
Fridley, Minnesota-headquartered Pipeline cited “significant financial distress” caused in part by covid-19 in its early July petition for Chapter 11 relief voluntary, filed with the United States Bankruptcy Court for the District of Delaware.
“The research and development teams at CPG companies stalled new product development and the inclusion of new ingredients, thereby reducing demand for the company’s products,” wrote Winston Mar, a managing director at Rancho Palos Verdes, California-headquartered advisory firm Sierra Constellation Partners, that was hired as Pipeline’s chief restructuring officer in April, according to the filing.
“The sourcing teams at CPG companies could not travel to visit and approve new manufacturing facilities, thereby reducing the company’s ability to increase volumes at its facilities. Food service customer orders declined due to the slowdown in their businesses.”
Pipeline defaulted on loans from Rabobank, Compeer Financial and others after its licenses to operate in Minnesota and Iowa were challenged by authorities responding to producer complaints about late payment. Pipeline’s bankruptcy filing showed debts of at least $129 million to secured and unsecured creditors.
New York-headquartered AMERRA – which declined to comment – established Pipeline in 2017 with an initial focus on expanding the US supply chain for organic and non-GMO product offerings.
Pipeline went on to establish a program to help finance and counsel producers through the conversion to organic production and acquire the organic grains division of Oaktree-backed SunOpta, the ancient grains unit of Wisconsin-headquartered Organic Ventures and storage facilities in Iowa, North Dakota and elsewhere.
The filing explains those acquisitions were designed to facilitate access to organic and non-GMO production regions and major rail lines allowing the company to service domestic and international markets. A list of Pipeline’s top 20 largest unsecured claims included outstanding trade debt to counterparties in the United Arab Emirates, India, China and elsewhere.
Pipeline supplies large consumer packaged goods, food manufacturing trading groups and others with products sourced through a network of 1,461 contracted growers. Approximately 55-65 percent of its suppliers are in the US and up to 30 percent are in Canada, according to the filing, which described long-term plans for between 5 and 10 percent of production to be sourced from Argentina and India.
Soon after Pipeline’s launch, co-founder Eric Jackson told Agri Investor the company aimed to fill a vacuum between large food companies’ booming demand for organic row crops and the relatively underdeveloped supply chain brought together over the previous 20 years. Large agricultural supply companies had yet to find a way to service the organic market, he explained, in part because of its demands and scale.
“Traceability and transparency are anathema to running a large grain terminal or crushing operation. Their assets are not built for down-scaling to the relatively small volumes of the organic and non-GMO space,” said Jackson, who left a position as adviser to Pipeline in March after having stepped down as chief executive in April 2019, according to his LinkedIn profile. “The Cargills of the world will become more interested after somebody builds something to scale.”
A source familiar with Pipeline told Agri Investor while certain of its assets could be of interest to large supply chain companies, none are likely to acquire all of the facilities. They acknowledged the challenges cited in Pipeline’s filing but stressed a fundamental mismatch between the scale of the company’s plans and its struggle to raise capital.
The source estimated AMERRA’s investment at $50 million and noted the recent rise in commodity prices has elevated the already substantial costs of assembling and operating a supply chain of the type proposed by Pipeline.
“Ultimately, they just were undercapitalized,” the source said. “It’s a shame, because the idea was a good one – it just needed 10 times the money they raised.”