Pink Slime' Manufacturer AFA Foods Enters Chapter 11 Bankruptcy

   By Stephanie Gleason 
   Of DOW JONES DAILY BANKRUPTCY REVIEW 
 

Meat processor AFA Foods Inc., which has come under fire recently for its low-grade form of meat, referred to as pink slime, filed for Chapter 11 bankruptcy Monday, saying that a sale of its assets is the best way to preserve the company's value in light of the recent backlash.

AFA Foods said it will have to suspend operations at its California facility beginning this week. It has secured $56 million in bankruptcy financing, which it said will allow it to continue the rest of its operations during its Chapter 11 case.

The company had struggled to return to profitability, it said, but had negotiated a debt extension that it said it believed would carry the company through the winter until sales of its products picked up in the spring, when outdoor-grilling season begins.

"This plan unfortunately was quickly undermined by market forces beyond the debtors' control," AFA said in documents filed with the U.S. Bankruptcy Court in Wilmington, Del.

The "unfounded public outcry over the use of boneless lean beef trimmings," it said, a product that has been in use for 20 years and is deemed safe by the USDA, but recently has become well-known to the public as pink slime, "dramatically reduced the demand for all ground-beef products."

Boneless lean beef trimmings, or pink slime, is a made from scraps of beef that have all the fat removed and are rendered and then treated with ammonium hydroxide.

"Almost all retail grocery stores have succumbed to public pressure to reduce or eliminate the sale of products containing BLBT, as well as public requests to prominently label products containing BLBT," it said.

The negative coverage of its products have instead meant a decline in sales rather than the warm-weather bump AFA Foods was counting on.

Other manufacturers of the beef additive have also seen a drop in demand. Beef Products Inc. said last week it had suspended production in its Texas plant and Cargill Inc. said it has reduced the output of the product, according to The Wall Street Journal.

AFA Investments Inc., the parent company of AFA Foods, claimed $219.6 million in assets and $197.3 million in liabilities as of February 2012 and said it had revenues of $958 million in 2011.

AFA Foods was originally created to process meat for the fast-food chain Gino's Inc. in 1967 and has since grown, acquiring United Food Group in 2010, to process over 500 million pounds of ground beef products a year. Its products are sold at Wal-Mart Stores Inc. (WMT), Safeway (SWY), Supervalu Inc. (SVU), Burger King, Jack in the Box Inc. (JACK), Carl Karcher Enterprises, Wendy's Co. (WEN) and Del Taco Inc.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection.)

-Stephanie Gleason, Dow Jones Daily Bankruptcy Review; 202-862-1347; [e-mail]