By Stephanie Gleason
Of DOW JONES DAILY BANKRUPTCY REVIEW
Meat processor AFA Foods Inc., which has come under fire
recently for its low-grade form of meat, referred to as pink slime,
filed for Chapter 11 bankruptcy Monday, saying that a sale of its
assets is the best way to preserve the company's value in light of
the recent backlash.
AFA Foods said it will have to suspend operations at its
California facility beginning this week. It has secured $56 million
in bankruptcy financing, which it said will allow it to continue
the rest of its operations during its Chapter 11 case.
The company had struggled to return to profitability, it said,
but had negotiated a debt extension that it said it believed would
carry the company through the winter until sales of its products
picked up in the spring, when outdoor-grilling season begins.
"This plan unfortunately was quickly undermined by market forces
beyond the debtors' control," AFA said in documents filed with the
U.S. Bankruptcy Court in Wilmington, Del.
The "unfounded public outcry over the use of boneless lean beef
trimmings," it said, a product that has been in use for 20 years
and is deemed safe by the USDA, but recently has become well-known
to the public as pink slime, "dramatically reduced the demand for
all ground-beef products."
Boneless lean beef trimmings, or pink slime, is a made from
scraps of beef that have all the fat removed and are rendered and
then treated with ammonium hydroxide.
"Almost all retail grocery stores have succumbed to public
pressure to reduce or eliminate the sale of products containing
BLBT, as well as public requests to prominently label products
containing BLBT," it said.
The negative coverage of its products have instead meant a
decline in sales rather than the warm-weather bump AFA Foods was
counting on.
Other manufacturers of the beef additive have also seen a drop
in demand. Beef Products Inc. said last week it had suspended
production in its Texas plant and Cargill Inc. said it has reduced
the output of the product, according to The Wall Street
Journal.
AFA Investments Inc., the parent company of AFA Foods, claimed
$219.6 million in assets and $197.3 million in liabilities as of
February 2012 and said it had revenues of $958 million in 2011.
AFA Foods was originally created to process meat for the
fast-food chain Gino's Inc. in 1967 and has since grown, acquiring
United Food Group in 2010, to process over 500 million pounds of
ground beef products a year. Its products are sold at Wal-Mart
Stores Inc. (WMT), Safeway (SWY), Supervalu Inc. (SVU), Burger
King, Jack in the Box Inc. (JACK), Carl Karcher Enterprises,
Wendy's Co. (WEN) and Del Taco Inc.
(Dow Jones Daily Bankruptcy Review covers news about distressed
companies and those under bankruptcy protection.)
-Stephanie Gleason, Dow Jones Daily Bankruptcy Review;
202-862-1347; stephanie.gleason@dowjones.com