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Country Fresh Holding Company Inc. – Food Service Company Files for Chapter 11 with $119mn of Funded Debt Less than Two Years After $300mn Out-of-Court Restructuring; Stellex Capital Agrees to Serve as Stalking Horse with $55mn Cash/Debt Opening Bid


February 15, 2021 – Country Fresh Holding Company Inc. and 16 affiliated Debtors (dba Fresh Food Group; “Country Fresh” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 21-30574 (Judge Isgur). The Debtors, "a premier, full-service provider of branded and private-label offerings" to the food services sector, are represented by John Melko of Foley & Lardner LLP. Further board-authorized engagements include (i) Ankura Consulting Group, LLC (“Ankura”) as financial advisors and to provide chief restructuring officer, (ii) Stout Risius Ross, LLC (“Stout”) as investment bankers and (iii) Epiq Corporate Restructuring as claims agent. 

At filing, the Debtors note between 200 and 1,000 creditors; estimated assets between $100.0mn and $500.0mn; and estimated liabilities between $100.0mn and $500.0mn ($119.0mn of funded debt). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Victory Packaging ($919k trade debt), (ii) D6 Inc ($886k trade debt) and (iii) Pacific Sales -($877k trade debt). All 30 of the Debtors' top unsecured creditors have trade claims in excess of $165k.

It is expected that affiliates TGF Acquisition Parents Ltd., Tiffany Gate Foods Inc., and Sun Rich Fresh Foods Inc. (collectively, the “Canadian Debtors,” not otherwise included in the chapter 11 bankruptcy proceedings) will file proceedings in Canada under the Companies’ Creditors Arrangement Act (the “CCAA”).

As described further below, in 2019 the Debtors completed an out-of-court restructuring that (i) saw $300.0mn of debt equitized, with the then first and second lien lenders take 100% ownership of the Debtors, and (ii) the exit of Country Fresh's then equity sponsor, private equity house Kainos Capital.

Proposed Asset Sale

The Debtors have entered into an asset purchase agreement (the “Purchase Agreement”) with (i) Stellex/CF Buyer (US) LLC (the “U.S. Buyer”) and (ii) Stellex/CF Buyer (CN) Inc. (the “Canadian Buyer”, and together with the U.S. Buyer, the “Buyers”) further to which the Debtors have agreed, subject to the completion of a section 363 auction/sale process, to sell all of their assets to the Buyers for consideration comprised of $30.0mn in cash and a $25.0mn note.

The Buyers are affiliates of global middle market private equity firm Stellex Capital Management (“Stellex”). 

DIP Financing

The Debtors have commitments for $13,416,000 (inclusive of an upfront fee) of debtor-in-possession ("DIP") financing, to be provided by a subset of their prepetition lenders.

Goals of the Chapter 11 Filings

The Marotta Declaration (defined below) provides: "The purpose of these bankruptcy cases is to allow the Debtors to stabilize their operations under the aegis of the Bankruptcy Court and the CCAA Court and explore their options for a potential reorganization through a plan process or a sale pursuant to section 363 of the Bankruptcy Code and section 36 of the CCAA."

Events Leading to the Chapter 11 Filing

In a declaration in support of the Chapter 11 filing (the “Marotta Declaration”), Stephen Marotta, the Debtors’ chief restructuring officer (via Ankura), detailed the events leading to Country Fresh's Chapter 11 filing. The Marotta Declaration provides: “Beginning in March 2020, federal, state, and local governments began to respond to the pandemic by enacting regulations restricting the operations of or outright closing non-essential businesses, including restaurants. The Company was deemed an essential business in every jurisdiction in which it operates, allowing it to continue to do business.

Unfortunately, as schools transitioned to virtual learning (a significant problem for the Company given its partnership with New York schools, in particular, in a program that provides apples to students in New York schools), restaurants shut down or significantly curtailed their operations, consumers began to avoid the fresh-food sections of grocery and similar stores, and, most importantly, large social and other gatherings began to be canceled due to state provincial, and local regulations and consumer preferences, the Company’s revenue dropped precipitously. As a result, the Company was forced to idle its Reading, Pennsylvania facility and furlough the employees based there. The Company’s other facilities across the country saw their utilization rates begin to fall, and input prices from suppliers of fresh foods and vegetables rose as those suppliers faced problems of their own.

To make matters worse, in October 2020, the FDA closed the Dallas facility due to the presence of listeria on one of the surfaces within the facility found during a routine inspection of the facility by regulators. The Company has since taken all appropriate steps to remedy the situation and comply with applicable FDA regulations, pass all necessary tests, and re-open the facility for production. The facility reopened in January 2021, but the production capacity lost while it was closed further constricted the Company’s revenue, and the Debtors have not yet been able to realize the increased production capacity.”

Prepetition Indebtedness

As of February 14, 2021 and excluding capitalized interest, the Debtors' indebtedness included: 

FN  The bridge financing of $5.6mn occurred through an amendment to the Senior-Secured Facility and carries the same terms. 

The Debtors also have a $5.8mn PPP loan.

Corporate History

The Fresh Food Group began in 1999 with the inception of Country Fresh, LLC, whose corporate headquarters was established in The Woodlands, Texas, where it remains to this day. Initially, Country Fresh focused on fresh-cut fruit—including apples, which continue to be a staple of the Company’s product offerings—and vegetables in a variety of blends, sizes, and packaging options. From its inception in 1999 to 2017, Country Fresh operated a single processing facility in Houston, Texas near its corporate headquarters.

In 2017 Kainos Capital (“Kainos”) acquired Country Fresh, LLC and its affiliated entities operating under the Country Fresh brand and, shortly thereafter, acquired entities operating under the Sun Rich Fresh Foods brand in the United States and Canada. The following year Kainos acquired Canadian entities operating under the Tiffany Gate brand and rolled all of the companies together to create the Fresh Food Group. The combined Fresh Food Group boasts 11 processing facilities, 8 in the United States and 3 in Canada, as set forth in more detail below.

In 2019, the Company faced significant liquidity and other economic pressures that caused its existing (at that time) secured lenders to take precipitous action. On April 29, 2019, the Company executed a debt restructuring and exchange transaction in order to de-leverage its balance sheet and convert certain long-term obligations (described below) to its secured lenders into equity. Through the 2019 Exchange, the lenders (who continue to be the largest stakeholders in the Company) equitized more than $300 million of senior secured debt.

Following this restructuring, Kainos no longer owned the company; rather, the Company’s first and second-lien lender groups took ownership of 95% and 5%, respectively, of the Company’s common stock in exchange for the satisfaction of significant secured debt. 

About the Debtors

According to the Debtors: “The Fresh Food Group (FFG) provides full-service fresh solutions for retail, foodservice, club and convenience stores including merchandising and category support. We proudly operate eight facilities across the U.S. and three in Canada. We are the leading providers of fresh-cut fruits and vegetables, snacking products and home meal replacement solutions."

The Marotta Declaration adds: "…referred to generally as the “Fresh Food Group”, a premier, full-service provider of branded and private-label offerings of fresh-cut fruits and vegetables, ready-to-go meals and meal kits, behind-the-glass salads, snacks, and ingredients/bulk food components to supermarkets, club stores, convenience stores, industrial, and food-service customers in the United States and Canada. Historically, the Company focused exclusively on fresh-cut fruit and vegetables; recently, it expanded its product offerings into sous vide and kettle cooking of chicken, fish, and beef entrees as well as pasta. The Company believes that the market for retail-ready fresh meal kits and ready-to-go meals will also continue to grow in addition to its staple offerings of fresh-cut fruits and vegetables and fresh snacking solutions

Corporate Structure Chart


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The post Country Fresh Holding Company Inc. – Food Service Company Files for Chapter 11 with $119mn of Funded Debt Less than Two Years After $300mn Out-of-Court Restructuring; Stellex Capital Agrees to Serve as Stalking Horse with $55mn Cash/Debt Opening Bid appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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