A combination of major losses on foreign exchange hedging in the initial days of the COVID-19 pandemic and an unsuccessful plan to sell assets to draw down debt contributed to Alberta-based pulse and grain crop exporter W.A. Grain & Pulse Solutions entering receivership in late April, according to a court document filed by the company’s largest lender.
ATB Financial has filed a 527-page affidavit with supporting documents that describes the financial institution’s perspective on what went down with the Innisfail, Alta.-based commodity business, which entered receivership on April 26 after having its grain dealer and elevator licenses suspended by the Canadian Grain Commission (CGC) less than a week earlier.
W.A. Grain and its related companies own handling and processing facilities at Bashaw and Bowden, Alta., as well as at Pambrun, Ponteix, and Vanguard in southwest Saskatchewan.The company also operates a processing plant at Slemon Park, Prince Edward Island.
ATB says it is owed $11.9 million by W.A. Grain, while Avrio — the company’s second largest lender — is owed $8 million. Court documents show Farm Credit Canada is also owed $4.7 million, resulting in an estimated total amount owing to secured creditors of $24.6 million.
As of May 9, the CGC has not released any numbers regarding the amount owed to farmers, but ATB’s affidavit says it believes W.A. Grain owes $6.5 million for unpaid inventory that was delivered before April 23, 2021.
According to ATB, W.A. Grain’s financial issues date back several years, but came to a head with the market volatility and rapid depreciation of the Canadian dollar in March 2020 as the COVID-19 pandemic — and related restrictions — hit the North American market.
W.A. Grain could not afford to make significant deposits required by its foreign exchange hedging firms, which led three of the company’s four hedging providers to terminate contracts in March and April of 2020. This resulted in realized hedging losses of C$7.6 million and US$1.5 million, says ATB. The lender also describes these currency positions as “speculative hedges” in breach of the company’s loan commitment letter. One of the four hedging providers itself entered bankruptcy in March 2020, resulting in an ongoing legal dispute over money owed by W.A. Grain.
In September of 2020, ATB says it met with W.A. Grain to develop a debt reduction plan, which included the sale of the company’s pet food division at Bowden by December 2020, and the sale of the export facility at Bowden in April 2021.
However, it appears this plan has been stalled by a standoff between W.A. Grain’s largest lenders.
ATB says Avrio has said it will not consent to the sale of the pet food division unless W.A. Grain pays down 12.5 per cent of its debt to Avrio. ATB, however, says it is not prepared to allow W.A. Grain to pay down its debt to Avrio “since it would compromise (W.A. Grain’s) working capital and their ability to continue operating as a going concern entity.”
The ATB affidavit also includes a brief mention that W.A. Grain’s financial situation has been hurt by “sporadic buyer demand as a result of (shipping) container shortages.”
The company was operating solely on accounts receivable collections, having reached the maximum limit on its $7 million operating line of credit, says ATB.
ATB says the list of things it believes BDO — the court-appoint receiver — should do to preserve W.A. Grain’s value includes potentially closing the sale of the pet food division without Avrio’s consent.
Meanwhile, the CGC issued new licenses to W.A. Grain effective May 1, with conditions that the company must not receive or buy any grain from producers, but allow for the sale of existing grain inventory under court approval.
The CGC says farmers who are owed money by the company for grain deliveries should contact the commission immediately. Producers have 90 days to make a claim after delivery or 30 days after a cash purchase ticket or cheque has been issued to be eligible for compensation under the CGC’s Safeguards for Grain Farmers Program.
RealAgriculture has reached out to W.A. Grain for comment.