US Bakery assumes Svenhard’s major debt

US Bakery buys $5 million of Svenhard’s debt, tries to push bankruptcy from Chapter 11 to Chapter 7

By John Lindt
Sierra 2 the Sea news service

EXETER – Svenhard’s sweet baked goods are coming out of bitter business deals since the company filed bankruptcy last December.

Before Svenhard’s filed Chapter 11 Bankruptcy to try and reorganize their $10-$50 million debt, US Bakery stepped in and bought $5.2 million worth of loans from their largest creditor, Bank of America. Company officials with US Bakery Inc, better known as Franz Family Bakeries, say they bought Svenhard’s Swedish Bakery operations.

“US Bakery did buy [Bank of America’s] loans.  Because the value of Svenhard’s is probably less than the value of the loans,…it is tantamount to buying Svenhard’s operations,” said Adam Stein-Sapir, a portfolio manager at Pioneer Funding Group.

US Bakery is a bread and pastry manufacturer headquartered in Portland, Ore. The company also owns a plan in Los Angeles. US Bakery also owns the Northwest regional bread brands Williams’, Gai’s and Snyder’s.

In bankruptcy court papers US Bakery says it has been operating Svenhard’s under the name Central California Baking Co. since November, even before the bankruptcy filing. And now that they have acquired the loans US Bakery is asking the bankruptcy court to convert Svenhard’s Chapter 11 filing to Chapter 7. They point out Chapter 11 is typically meant for companies who want to reorganize and continue operating.

Attorneys for Svenhard’s say US Bakery’s claim is, “Based upon a Guaranty Reimbursement Agreement between US Bakery and [Svenhard’s] and a security interest granted to [US Bakery] in 2017. [US Bakery] alleged that it had a lien upon the [Svenhard’s] cash on account of the payment made to Bank of America the day prior to the petition date.”

But Svenhard’s disagrees. In an April court filing they say they plan to litigate the lien.

Attorneys for US Bakery note that, “[Svenhard’s] has no business to rehabilitate or reorganize.” And the, “[They have] no post-petition operations or business activity.” The conversion would halt any payment of funds to corporate staff as well as their Chapter 11 on going attorney fees.

“The February monthly report shows attorney fees incurred to date of over $110,000,” points out the US Bakery attorney.

“Based on [Svenhard’s] own filings and testimony, as described above, there can be no reasonable dispute that [Svenhard’s] has ceased business operations and has no tangible assets to liquidate. Its operations are no more. Yet it is incurring administrative expenses,” US Bakery attorneys stated

All creditors look to sort out who gets what in court proceedings scheduled this month and next in Fresno.

One major creditor is Bimbo Bakery who claims they are owed around $730,000 over a period when US Bakery took over operation but did not properly notify Bimbo.

“As is generally the case with chapter 7 liquidations it is very likely [Svenhard’s other creditors] will be wiped out with no recovery. Even worse they will be left without a go forward customer,” Stein-Sapir said.

Meaning that creditors who would have relied on Svenhard’s to pay back their loans will just have to move on entirely.

Bimbo purchased various baked goods and related items from the Debtor – Svenhard’s.

But Bimbo says they did not know until December that the company had a new owner so the payments had been sent to the old Svenhard’s entity and now Bimbo has to pay twice for the same goods. They claim that, “Payments for many of the purchase orders Bimbo placed with the [Svenhard’s], but allegedly filled by CCBC after [Svenhard’s] ceased operating, continued to be directed to the [Svenhard’s] deposit account with Central Valley Community Bank.”

This too will be sorted out in bankruptcy court. It is not clear how all this will affect the Bakery Union’s Pension Fund owed $2.38 million.

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