Knudsen Dairy Officials Huddle With Chief Creditor as the Money Runs Out

Representatives of financially crippled Knudsen and its chief creditor Citicorp were locked in daylong negotiations Friday, trying to work out details of what may be the final days of the West’s largest dairy.

Knudsen on Friday told several customers, including the Los Angeles Unified School District and the Stater Bros. market chain, that it will stop delivering milk and other products by the weekend or early next week. On Thursday, many of the state’s dairy farmers stopped shipping milk to Knudsen after the company said it could not pay them.

Knudsen Chief Executive John P. Brincko testified in bankruptcy court Thursday that the ailing dairy did not have the money to continue operating beyond Friday night.

Bankruptcy Judge Barry Russell denied Knudsen permission late Thursday to take a $5-million loan from Los Angeles-based Foothill Capital, which would have had to be repaid ahead of Knudsen’s other creditors under terms of the loan. Citicorp, which is owed $155 million and has been keeping Knudsen operating with weekly cash infusions, objected to the new loan.

Knudsen spokesman Simon Barker-Benfield said there was no announcement about the company’s future, but he noted that Citicorp’s lawyers said in court that money would be available for all employee costs related to a shutdown of Knudsen. Employees were paid as scheduled on Friday, he said.

Knudsen’s fortunes soured after it tried to build a national dairy company through the $50-million purchase last year of a top competitor, Foremost Dairies. The debt from that and other purchases became too much for the company, which filed for bankruptcy-law protection on Wednesday.

In the filing, Knudsen listed liabilities of $601.3 million and assets of $422 million.