Creamery officials pitch plan to five banks

New business plan includes producers and community pitching in

Originally published in the "4-9-09" issue.

Humboldt Creamery Board President Jim Renner and Interim CEO Len Mayer pitched the creamery’s new business plan to five banks Tuesday morning, in hopes of securing credit. The banks include one unnamed local financial institution, according to Mayer.

Meanwhile, the interim CEO told The Enterprise that CoBank, American AgCredit and Northwest Farm Credit Services, to which the creamery owes more than $55 million, may not be abandoning the creamery as was reported by Mayer last week.

As Mayer and Renner were trying to win over potential lenders, creamery director Dennis Leonardi on Tuesday morning led yet another producer/member meeting at the fairground’s Turf Room as part of the creamery’s ongoing effort to keep the member owners informed of the plan to save the 80-year-old cooperative and explain its new business model.

Mayer explained the new model will hopefully encourage banks to open up a line of credit for the cooperative so it can keep operating and fulfill orders as summer production gears up and orders wait.

“It’s not totally complete, but basically dairymen raise new equity through three or four identified sources,” explained Mayer, “renegotiate with banks to an affordable level, trim down the company to a simpler model, sell unused assets such as the L.A. plant, develop more rigorous oversight, create more transparent reporting to members and community, and move the creamery to a more modern business model.”

As to the reality of members already stretched by “deferred” milk checks putting money back into the business, or community members who were pitched a company that is in reality worth half of what it was portrayed when they were asked recently to invest in the creamery, Mayer conceded it’s a tough road ahead.

“Obviously, we have a huge chasm there to repair,” said Mayer, referring to the recently nixed preferred securities offering to potential investors. “We’ve got to go back out and say mea culpa, but here’s why you can really invest this time . . .we’ve got a new auditor that’s gone through every inch of our buildings and here are the real numbers.”

As to already stretched members reinvesting, Mayer said the board’s preference is to have the creamery remain a locally-owned company.

“I think the board clearly would like to maintain control by local dairy farmers and the community and not have to depend on someone from Washington, or say, New Jersey.”

Meanwhile, Mayer said that late last week CoBank, which is the lead bank for all of the creamery’s loans and line of credit, indicated “we should not necessarily write them off.

“We obviously would welcome that,” said Mayer. “So far they’ve worked with us and we appreciate that and would like it if they were our partner going forward.”

Mayer said the creamery's indebtedness would have to be renegotiated and that the lender would probably have to “take a haircut.”

“Do you reduce the payment? Extend the term? Do you reduce the principal amount and term?” said Mayer. “CoBank is in a tough spot. They were mislead like everyone else was.”

Work also continues in an effort to obtain backing from the USDA Rural Cooperative Development loan and grant program. Mayer explained that the agency will back up to $25 million in new monies loaned to the creamery.

“There’s less risk in this deal to banks if the loan is guaranteed by the USDA,” explained Mayer.

Meanwhile, weekly producer meetings are scheduled and at the conclusion of Tuesday’s, Director Leonardi said producers had a chance to vent frustrations, ask questions and determine the best way for members to receive information.

Leonardi and Mayer both said they are well aware of the stress and frustration levels members are expressing.

“We know they’ve missed milk payments and there is uncertainty about the future,” said Mayer. “Before all this, it was a fairly straight forward business. They got monthly information and we had our annual report. It’s been steady for 20 some years and now it’s complete turmoil. Their reaction is completely understandable to me, that’s why we’re working to get good answers for them and get them on as normal footing as quickly as we can. It’s not easy. But, we’re trying to get them stabilized. We’ll keep meeting as long as they want and when it gets to the time that some are saying, ‘this is a waste of my time,’ that’ll be great.”

With dairymen also calling around to other processors to see what their options are if the creamery fails, Mayer said he “doesn’t begrudge them thinking that way.

“I worry about losing them, sure. But at this point all that stuff is normal thinking about what their options are,” he said. “We want to get them good enough information so they can see that this can continue to be a good deal for them.”

As far as criminal investigations into the alleged fraud by former CEO Rich Ghilarducci, Mayer said the creamery continues to scan and email documents to the US Justice Department. He also said he had unconfirmed reports that the FBI was in Humboldt County investigating. A spokeswoman from the FBI’s San Francisco office said the agency does not comment on whether they are investigating a case. The information only becomes public when or if there is an arrest.