Chiquita Brands International, the company at the hub of a trade dispute between the US and the European Union over bananas, has announced that it will halt debt repayments and ask investors to consent to a restructuring of US$862mn (€914.3mn ) of bond debt.
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The action could culminate with the banana company filing for Chapter 11 bankruptcy protection later this year, the company said Tuesday. Any proposed deal with bondholders would involve a swap of debt for equity.
Steven Warshaw, the company’s president and COO, acknowledged that the restructuring move could spark demands for immediate payment on the company’s interest and principal obligations.
An analyst with Prudential Securities said neither shareholders nor bondholders would be happy with Chiquita’s announcement, but it was probably the only move the company could make.
Chiquita has obtained a commitment for an 18-month secured bank credit for as much as US$85m to replace its expiring credit agreement. But Warshaw said this new facility might not be enough to repay the company’s subordinated debentures when they come due in March.
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By GlobalDataWarshaw blamed the company’s current financial woe not only on the weak euro but also on the long-running trade dispute between the US and the EU over bananas. A World Trade Organization appeals body ruled in 1998 that the EU’s trade system discriminates unfairly against the US in favour of EU companies, a system that directly affects Chiquita, who previously dominated the EU banana trade. The US has since slapped US$191m a year of retaliatory trade sanctions on imports from the EU. The US government and Chiquita have been pushing for the EU to return to a licensing-system for importers based on historical trading patterns that existed before 1993.
Chiquita has vowed that the company would continue its heated lobbying campaign for reform of the European banana policies. The company claims the trade dispute was costing Chiquita US$1.5bn a year as the EU banana market represents Chiquita’s biggest source of operating cash flow.
The Cincinnati-based company is the biggest US banana producer but has in recent years cut its work force and stopped paying dividends because of its acute financial problems.
