Michigan Farm Considers Options

Receivership Running Large Michigan Farm in Legal Battle Over Debt

Todd Neeley
By  Todd Neeley , DTN Staff Reporter
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Boersen Farms operates more than 80,000 corn and soybean acres in western Michigan.

OMAHA (DTN) -- Zeeland, Michigan-based Boersen Farms is set to either restructure its debt or file for bankruptcy, according to a motion filed in the U.S. District Court for the Western District of Michigan this week.

Boersen Farms had asked a federal court to place its operation in the hands of a receivership, in response to a lawsuit alleging the farm defaulted on about $145.3 million in loans from CHS Capital LLC in August.

On Friday, the district court denied the farm's motion to reconsider that action. In the farm's motion for reconsideration, it indicates it is preparing for either restructuring the debt or filing bankruptcy.

Boersen Farms Inc. bought the bulk of Decatur, Michigan-based Stamp Farms LLC's land-lease agreements and other assets in what was considered one of the largest farm bankruptcies ever in 2013.

CHS Capital has asked the court for a receivership. That would place all property used as collateral for the loans under the control of an independent person known as a receiver. According to court records, Boersen Farms agreed with the motion, only to change its mind.

CHS Capital is a limited liability company based in Minnesota and a wholly-owned subsidiary of CHS Inc.

In Friday's ruling, the court said Boersen Farms could ask a bankruptcy court to allow it to continue as a debtor in possession. Debtor in possession is a person or corporation that files bankruptcy while remaining in possession of property.

"The defendants in this case originally consented to a receiver with much broader power than the court ultimately granted," the Kalamazoo, Michigan, court said in its ruling.

"In fact the defendants expressly agreed to a receiver with the power about which defendant Boersen now complains. The court previously provided several opportunities for the defendants to object to plaintiff's motion. No one objected. If defendant now believes he is better positioned to handle the matter without the receiver, he can file before the receiver does and ask the bankruptcy court for permission to proceed as debtor in possession."

An attorney for Boersen Farms did not respond to DTN's request for comment.

Brent King, managing director of GlassRatner Advisory and Capital Group LLC, based in Kansas City, Missouri, a company that helps manage companies going through bankruptcy, said the receivership essentially puts the brakes on a move to bankruptcy court.

"CHS has achieved their main goal: removing Boersen so they won't push for a Chapter 11 filing now," King said.

"Furthermore, the remaining creditors are likely to assist the receiver and have a higher level of confidence for now, in working with the receiver, so they're unlikely to push for a Chapter 11."

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Chapter 11 bankruptcy protects companies from creditors while companies restructure.

A number of equipment and chemical companies, as well as other financiers have filed motions to intervene in the district court case, essentially letting the court know Boersen Farms owes them money as well.

Boersen Farms also faces related lawsuits in Utah and Kansas.

In U.S. District Court for the District of Utah, equipment company TFG-Michigan filed a lawsuit claiming it has not been paid for more than 120 center pivots leased by Boersen Farms. In U.S. District Court for the District of Kansas, Boersen Farms was sued for breach of contract related to its pursuit of finding someone to acquire the CHS debt.

Stamp Farms filed for Chapter 11 bankruptcy protection in November 2012. Boersen Farms bought the farm's assets at an auction on Feb. 5, 2013, including irrigation equipment and unexpired three- and five-year leases on a farm that once claimed to operate across 46,000 acres.

As collateral, CHS said in the lawsuit it is entitled to Boersen Farms' current crop in the ground that includes about 25,000 acres of corn and about 58,000 acres of soybeans, valued at an estimated $49.7 million, according to the lawsuit.

In addition, CHS lays claim to 56,415 bushels of corn stored from the 2016 crop at three storage locations.

GETTING HOUSE IN ORDER

King said the Boersen Farms case is a good reason for producers to take inventory of how they handle debt. There are safeguards farmers should follow, especially in the current farm economy environment.

Producers should set their equity levels at 25% or more for yearly production costs, King said. It is important to borrow no more than 75% of your operational cost and fund at least 25% with your own equity, he said.

"This rule goes a long way to insure that your operation is financially responsible, fully engaged and protected from bankruptcy," King said.

"For crops, funding 25% of your operation's production and linking that ratio to your crop insurance means that, even in a worst-case scenario, you are likely to pay back your production loan. This simple equity rule builds a solid relationship promotes a healthy financial operation."

When it comes to long-term debts, King said farmers should establish debt-to-equity ratios for long-term assets based on the "depth of your pockets and the profits the asset are likely to generate."

Producers need to carefully forecast operating profits from the asset using historic commodity prices, he said. Farmers should structure their equity/debt ratio to insure their operating profits fund the long-term debt payments.

"Predict periods of low profits and have a workable plan to get through the tough years," King said. "Above all, never allocate your short-term operating funds to pay for long-term assets."

On cash rents, he said rent payments must be "feasible" in your cash flow models.

"It may be exciting to win a cash rent auction for the largest fields in your area, but temper that excitement with your own financial models to demonstrate that the cash rent you decide to pay is likely to earn the profit you deserve for farming those big fields," King said.

"Remember, it's better to walk away from a cash rent auction knowing you're operation remains protected than to enter into a cash rent agreement that exposes your operation to losses."

Boersen Farms purchased the Stamp Farm assets at a time when corn on DTN's National Corn Index stood around $7. Now, the DTN National Corn Index is at just under $3.06 a bushel.

"Do not be distracted by irrational commodity values," King said.

"Welcome high profits of peak years and wisely allocate the extra income. Pay down debts, increase your contribution to operation expenses, acquire some important long-term assets or upgrade production facilities. Nevertheless, remain vigilant and know that commodity values will soon return to normal, near the cost of production."

King said it's important to rely on "rational, historic" values in forward-looking models.

"Basing the financial decision of your operation on conservative, historic commodity pricing will place your operation on a secure ledge as the troughs and waves of commodity values break around you," he said.

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Todd Neeley can be reached at todd.neeley@dtn.com

Follow him on Twitter @toddneeleyDTN

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Todd Neeley