American Seafoods struggles with high debt, low fish prices
American Seafoods, which harvests more fish than any other U.S. company, is in a financial pinch that has ratings agencies warning it may soon default on its massive debt.
Seattle Times deputy business editor
American Seafoods Group, whose fleet of big, blue-and-white catcher-processor ships harvests more fish than any other U.S. company, may soon default on some of its massive debt as it struggles with low prices and inadequate cash flow.
The Standard & Poor’s credit agency last month lowered its rating of the Seattle company, writing that unless market conditions change, “a default or financial restructuring appears inevitable within six months.”
American Seafoods employs about 1,000, according to its website, and is based on First Avenue near Pike Place Market. Its six factory trawlers often fish in the Bering Sea, where American Seafoods has about 45 percent of the quota for at-sea harvesting of pollock; in Seattle they dock at Terminal 91 near Magnolia.
The company is laboring under more than $900 million in estimated debt, and has been highly leveraged for at least a decade. The debts were piled up when prices were strong for the pollock and Pacific hake it catches.
But in recent years tilapia and catfish have challenged pollock’s role as the dominant raw material for fish sticks, surimi and other products. Meanwhile, demand from the important Japanese market has weakened and the yen has plunged in value.
That’s left American Seafoods with shrinking revenue from which to service its multitiered debt, some of which comes due next year.
“It’s the worldwide pricing of fish, and it’s not in their hands,” says S & P credit analyst Chris Johnson. “That’s just making it very difficult for them to meet their financial covenants, and sustain their current capital structure.”
The S & P credit rating for ASG Consolidated, the parent company, has dropped to CCC-, below the 9th rung on its 12-step ratings ladder. S & P says the company’s debt is more than 8 times its operating earnings before depreciation expenses.
Moody’s, another bond rating service, estimates American Seafoods had just $370 million in revenue for the 12 months ended in September.
That’s down from $514 million in 2005, when American Seafoods still reported its financial results publicly.
Moody’s downgraded the company in November. Both agencies’ outlook on the parent company is negative, meaning further rating cuts could follow.
American Seafoods spokesman Ron Rogness did not return calls seeking comment on its financial situation. In October the financial news service Debtwire reported American Seafoods had hired advisory firm Blackstone to explore refinancing options.
Handicapping how the situation might be resolved is difficult from the outside, says Johnson: “All kinds of offers could be on the table.”
It’s not likely the financial undertow will pull the company into Chapter 11 bankruptcy reorganization. More probable is a “distressed exchange” in which some lenders are pushed to accept concessions such as lower interest or longer repayment terms.
If there were a full-fledged liquidation, however, S & P figures the gross value of American Seafoods’ assets is roughly $685 million — not enough to pay all the lenders.
John Sackton, publisher of industry website SeafoodNews.com, says there’s been a lot of mergers-and-acquisition activity in the seafood business right now.
But unlike the major U.S. pork and beef producers that were sold to foreign giants in recent years, American fishing fleets must be 75 percent U.S.-owned, according to federal law. That limits the potential pool of buyers, if American Seafoods were put up for sale.
Regardless of the outcome, says Sackton, “Those vessels are going to keep operating and harvesting pollock and operating out of Seattle. Because they are just too efficient, too good at what they do.”
Rami Grunbaum: 206-464-8541 or email@example.com