Knudsen Can’t Meet Bills, May File for Bankruptcy

Knudsen Foods, the largest dairy products company in the West, said today it doesn’t have enough money to pay dairy farmers and other suppliers and may file for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code.

Knudsen, which is owned by Los Angeles-based Winn Enterprises, said it missed a multimillion-dollar payment to dairy farmers on Monday. Dairy industry sources said Knudsen owed farmers about $40 million for two weeks worth of milk.

Knudsen’s announcement sent a wave of concern through California’s dairy industry, as farmers tried to find other buyers for their milk. Trading of Winn Enterprises stock was delayed today on the American Stock Exchange after the exchange asked Winn to provide additional information.

Effect on Supply Unclear

It wasn’t clear what effect Knudsen’s financial problems would have on the availability of milk in Southern California supermarkets. Michael Shultz, the dairy buyer for Hughes, a large purchaser of Knudsen milk, said the supermarket chain had received assurances from Knudsen that Hughes would continue to receive its normal supply. “I understand that everything is A-OK for now,” he said.

“These latest events are particularly disappointing,” said Ted D. Nelson, chairman of Winn.

Winn said it has been experiencing financial problems since last September, when the company disclosed that it wasn’t able to pay some of its debt holders. Winn took on large amounts of debt to buy Knudsen for $74.8 million in 1983 and Foremost Dairies, Knudsen’s arch rival, for $50.1 million last year. Several weeks ago, Winn, which also owns a small Utah savings and loan, announced that all or part of the company was for sale.

Knudsen executives were reportedly negotiating with dairy farmers and bankers this morning in an effort to arrange for milk deliveries on a COD basis. Meanwhile, some farmers said they refused to deliver milk to Knudsen today, preferring to store it at their dairies until Knudsen assured them of payment.

Gene Koopman, an Ontario dairy farmer, said that by mid-morning, he had stored about 4,400 pounds of milk on his farm that would have normally been bound for Knudsen’s plants. He said, however, he wasn’t sure what he would do with the milk after his storage tanks are full. “The big issue for producers now is finding a home for the milk.”