Tyson Foods signs new lender agreement

MILWAUKEE — Tyson Foods Inc., the world's largest meat company, said Wednesday it has signed a new agreement with its creditors that puts up just about the entire company as collateral for its loans.

Tyson filed regulatory documents Wednesday that revealed terms of the changes to company's five-year revolving credit agreement.

The filing said the Springdale, Ark.-based company and its subsidiaries "pledge substantially all of their assets to secure performance of the company's obligations under the credit agreement." The filing notes that before the amendment to the pact, only some of its assets were used as collateral.

It's not uncommon for companies in this industry to put themselves up as collateral when they enter a down cycle, said Barclays Capital agribusiness analyst Christopher Bledsoe.

The meat industry is certainly in a down cycle. Volatile commodity prices have been hurting producers and squeezing their profit margins. Weak demand and an oversupply of meat on the market have been keeping pricing down, which makes it difficult for meat makers to recoup the higher costs. Producers have pledged to cut production, and those cuts are taking place, Bledsoe said.

He said it was good news that the company was able to get credit in this environment, which is seeing lenders tighten up on their loans amid global economic woes.

Pilgrim's Pride Corp., the nation's largest chicken producer, filed for Chapter 11 bankruptcy protection earlier this month, saying it was hobbled by debt and volatile feed prices, and unable to get additional waivers from its lenders.

Bledsoe said he expected Tyson's stock to rise higher on the news Wednesday. Its shares were up a penny to $7.75 in late morning trading.

That could be cause of concerns about leverage ratios contained in the new agreement, he said.

The new amendment raises the leverage ratio — how much debt the company can have relative to its EBITA, earnings before interest, taxes and amortization — for the next two quarters. That would give Tyson wiggle room as as it tries to weather the downturn in the meat industry.

But after the next two quarters, the ratio will fall lower than its current levels, according to filings.

"The hangup is that the covenant leniency is only in place officially now for the next two quarters," he said.

But he said Tyson and others in the meat industry expect to push through these tough times in the next year as production cuts take affect and input prices moderate.

So Tyson could be positioned so that it does not need the extra leniency, he said, adding it now seems to have the financial flexibility in place to get it through the rough patch.

Bledsoe noted that the cost of borrowing has now increased, about 1 penny a share, under the new agreement. The company is also paying a one-time fee of $5 million to its lenders connected to the new agreement.

Last month, Moody's Investors Service downgraded Tyson Foods on concerns that the company's chicken business will lose more money and that its acquisition strategy will limit its available cash.

The company said last month in announcing its fourth-quarter earnings that gains in its beef and pork units helped profit rise 50 percent, but high grain costs hurt its chicken business, leading to a $91 million operating loss in that sector.

Tyson President and Chief Executive Richard L. Bond said he expects the company to "lose some significant dollars" for the first quarter of 2009 in its poultry segment. In the pork business, Bond said he does not expect any record-setting quarters in fiscal 2009 but does expect the segment to do well.

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