Knudsen Gets New Lease on Life From Its Chief Lender

Ailing Knudsen emerged Monday from three days of intense negotiations with Citicorp, its chief lender, armed with new funds that will allow the West’s largest dairy to continue limited operations--at least for two more days. The company also removed all but one member of its board of trustees.

Meanwhile, the company is expected to step up its efforts to sell the business piece by piece. Company officials said last week that Knudsen has received $200 million in offers for parts of the company.

Knudsen Foods, parent of Knudsen and Foremost dairies, announced Monday that the company’s lenders agreed to provide “adequate funds” to keep the company operating through Wednesday. Knudsen did not reveal the size of the loan.

In addition, U.S. Bankruptcy Judge Barry Russell authorized Knudsen to borrow operating funds from its lenders at will rather than requiring the Los Angeles company to seek court approval for each cash infusion. Knudsen has been operating under bankruptcy law protection since Wednesday.

A Knudsen spokesman said the company is continuing to negotiate with Citicorp Industrial Credit Bank about future operating funds.

In addition, Knudsen announced that crisis management consultant John P. Brincko, who was named president and chief executive at a Sept. 13 board meeting, will remain as sole board member of Knudsen Foods Inc. and its subsidiaries, Knudsen Corp. and Foremost Dairies Inc., as well as Knudsen Agricultural Management Co., which is a subsidiary of Knudsen Corp. Russell gave Brincko authority to make any decisions on the sale of Knudsen’s properties.

On Monday, Knudsen began ordering milk again from some of the state’s dairy producers that had stopped shipping milk to the company last Thursday after they were told that they would not be paid. Brincko testified in bankruptcy court the same day that the dairy had only enough cash to operate through last Friday night.

Knudsen closed some Midwestern operations of its Foremost Dairies subsidiary over the weekend, and it was not clear whether they would be reopened. It also closed a plant in Tipton, Calif., on Monday.

The court approved arrangements that would keep Knudsen’s plants at Lemoore and Hughson, Calif., operating while negotiations for their sale to Leprino Foods of Denver are continuing.

Knudsen had sought a $5-million loan from Foothill Capital of Los Angeles, but Russell blocked that request last Thursday because Foothill wanted to be repaid before other creditors. Representatives of Knudsen and Citicorp Industrial Credit Bank then launched into negotiations that lasted throughout the weekend.

By late Sunday, Citicorp agreed to extend Knudsen new credit that will allow the company to continue operating while the dairy works to complete the sale of various units.

Brincko testified Thursday that Knudsen, which has been losing $500,000 a week, is worth about $200 million as a going concern but less than $80 million if it were shut down and liquidated.

Although Knudsen began ordering milk on Monday, producers said that no milk would be shipped until payment is received. Knudsen already owes milk producers $36 million.

At California Milk Producers Assn. in Southern California, Knudsen ordered 72,000 pounds of milk on Monday, assistant manager Dick Mullard said. “Citicorp realized that wet plants are worth more than dry plants,” he said.

Some milk producers plan to assess a service charge of 50 cents per 100 pounds of milk, one source said.

Officials of Foremost Dairies at the Springfield, Mo., regional offices told United Press International that the company closed plants in Springfield and Joplin, Mo., and Basehor, Kan., last Saturday. Foremost also closed a production facility in Paragould, Ark., but continued to operate the distribution facility.

“It’s a very sinking, saddening feeling,” said Elmer Dryden, regional vice president and general manager of Foremost’s Springfield offices. “A lot of tears were shed.”

Knudsen acquired its rival Foremost last year in its bid to become a national dairy company, but mounting debts became too much for the company.