Saskatchewan Wheat Pool’s chief executive officer is being praised for developing a restructuring plan that apparently appeases both bondholders and banks.
“Stickhandling through this was probably the most important thing he has done so far, and it looks like he has succeeded,” said David Schroeder, an analyst with Dominion Bond Rating Service.
Brett Fairbairn, director of the Centre for the Study of Co-operatives, agrees with that assessment of Mayo Schmidt.
“That’s actually a pretty big achievement on his part,” said Fairbairn, who closely follows the pool.
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Bondholders were scheduled to vote on Schmidt’s plan on Feb. 4, after the Western Producer news deadline. A Feb. 3 News release
news issued by SWP said the plan had the support of both classes of creditors, giving the company a new lease on life.
“This gives them good time and flexibility to turn the business around,” said Schroeder.
But Fairbairn said while the pool has more breathing room, the company still faces a mountain of debt.
“The basic issue is the pool’s debt and what to do about that and this doesn’t solve that problem.”
Schroeder said Schmidt’s management team was doing all the right things to get the pool’s house in order, but last summer’s drought derailed its progress.
“They’ve generally been doing a good job at turning this thing around. They were stuck with quite a basket case when they showed up,” he said.
Between July 31, 2001 and July 31, 2002, the grain company paid off $249 million in debt by selling numerous assets.
But faced with half a crop this year, SWP was looking at vastly reduced handlings and couldn’t keep up with its repayment obligations.
Schmidt had the difficult task of preparing a restructuring plan that would please both bankers and bondholders and keep the company afloat by pushing back the due date for hundreds of millions of dollars of debt.
Schroeder said a yes vote on the proposal will give the pool the time it needs, but he agreed with Fairbairn that it doesn’t ensure a healthy balance sheet.
“The industry still faces structural challenges – too many competitors, too much capacity and a changing regulatory environment hammering down margins. But this gives them the benefit of time.”
Schroeder also approved of governance changes the pool has agreed to, which include the appointment of four independent directors.
“You just don’t get that many different views when you have an entirely farmer-dominated board. So they’ll bring in some outsiders here, which is positive.”
But two other changes are required.
“They need a normal crop year this year and they need to begin to show some earnings,” said Schroeder.
