Monette Farms’ financial woes a cautionary tale

With Monette Farms and its many affiliated companies filing for creditor protection, a range of emotions has been generated from those following the saga.

Some are sad to see a company fail. Others are gleeful. Nearly all are amazed at the scope of Monette’s operations and the extent of the financial difficulties.

According to court documents filed at Court of King’s Bench in Calgary, the Monette Group forms one of the largest private farming businesses in North America with operations in Alberta, Saskatchewan, Manitoba, British Columbia, Montana, Colorado and Arizona.

The group owns approximately 274,000 acres of land and leases approximately 218,000 acres. It also has seed processing and produce storage facilities.

The restructuring plan is debtor-in-possession financing because the applicants are insolvent and don’t otherwise have the finances to seed a crop this spring.

Monette did recently sell some farmland, most notably about 13,000 acres near Stewart Valley, Sask., for $54 million. Subsequent activity resulted in two more sales totalling nearly $31 million. However, the proceeds were not enough to continue operations.

The document says the group requires additional time to “implement a controlled deleveraging and refinancing. The strategy includes the right-sizing of the business and balance sheet through an orderly disposition of assets.

Without debtor-in-possession financing, crop would not be seeded and the land would not generate income and then drop in value. In addition, about 600 seasonal employees would lose their jobs.

What were lenders thinking?

It’s considered in the best interests of the lenders led by the Bank of Nova Scotia to supply the necessary additional financing — up to $90 million.

Bank of Nova Scotia dominates the list of secured creditors at a whopping $850 million.

Farm Credit Canada is also on the secured creditor list at $11.8 million.

Soderglen Ranches Ltd., with something called a vendor take-back credit facility, is on the list for about $16.7 million.

Various equipment leases round out the list at $26 million. Total secured creditors — more than $904 million.

There are hundreds of other secured and non-secured creditors, ranging from a few dollars to a few million dollars.

These include input suppliers, equipment companies, grain bin suppliers and transport companies.

Saskatchewan Crop Insurance Corp. is owed more than $2.7 million.

The list of other creditors for all the Monette companies totals more than $35 million.

At best, these creditors are likely to wait a long time to get their money. At worst, depending on how the restructuring goes, they might end up losing some or all of this money. You have to feel bad for these companies.

Not too many tears will be shed for the lending institutions that kept the Monette empire growing at an unsustainable rate. What were they thinking? Where was their analysis?

On one hand, it’s sad to see Monette fail, just as it’s sad to see any entrepreneur try hard and fail. Many operators realize that they could be one or two bad years away from their own financial difficulties.

On the other hand, Monette grew large by outbidding other farms for owned and rented land. That generated animosity and, some say, drove up overall land prices.

What will Monette’s troubles mean for the industry? Will it lead to a tightening of credit? Is it a signal of looming financial difficulties in the grain sector? Will it generate downward pressure on land prices?

It certainly shows that no business is too big to fail.