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NEND | No doubt the lawyers will make money off of this for years to come.
I had a couple of large deals back in my banking days, but nowhere near the size of this.
Here are the problems facing both the borrower and the creditors:
1) Bank of Nova Scotia has a syndicated note of a large amount. That means there are many other banks/financial institutions/life insurance companies underneath. I worked on one syndicate note collection back in the day of $100 million that was participated out to 27 other banks. What happens is even with a plan that works (usually doesn't exist) the creditors start fighting amongst themselves. Even to the extent of lawsuits within the group ranging from breach of fiduciary responsibility to outright fraud.
2) A chapter 11 in the US is a reorganization. They filed a chapter 15, which is the same thing, just for foreign companies. Typical 11's involve a company that has unsecured creditors, and the secured creditors usually don't have much value for security, so generally, the creditor group is OK for a write-down. Better to get $.65 on the dollar than nothing. This is not the case in a farm reorganization. No secured creditor is going to write-down their balance if they have assets to liquidate that would result in more money back versus earning it through cash flows. So that brings a reorganization back to can the entity cash flow without a write-down. Of course not, otherwise why would they have filed in the first place? I never witnessed a reorganization filing ever work in production agriculture. Why? In addition to the reasons above, who in their right mind is going to provide the necessary capital to plant the upcoming crop? Nobody.
3) Everybody always forgets about Uncle Sam in these situations. There is always a tax situation associated with liquidating farm assets to pay liabilities, when those farm assets (land or equipment) have tax implications upon sale. You do not get to discharge debt owed to the US Treasury in a bankruptcy. I'm sure there are carryover operating losses to offset, but somewhere along the line, taxes are the last thing creditors and trustees think about.
4) The creditors are going to sit in purgatory for the rest of 2026. These reorganizations take months to just get a plan together, and that is if everybody is getting along.
5) There's always a rogue creditor out there. Someone that can't afford to wait, or they just plain want to come in, shoot first, and ask questions later. These guys will be filing motions to move the case from a chapter 11 to a chapter 7. In a chapter 7, a trustee is appointed to all assets and liquidation begins. In the short-term, the motions are ignored, but it only takes a matter of time before the judge gets tired of waiting for a plan.
I have no idea how the reorganization works in Canada. I'm just speaking on the US side. | |
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Monette farms liability
