San Antonio food-maker seeks bankruptcy protection (2/25/19)
By Patrick Danner
San Antonio-based Mexican food-maker Papa Grande Gourmet Foods, which sells products under the brand name Andy Garcia Foods, has filed for bankruptcy protection.
Papa Grande and an affiliated company each filed Chapter 11 on the eve of a scheduled state district court hearing where lender TransPecos Banks was going to ask a judge to appoint a receiver to take control of the business.
The bankruptcies put a halt to Tuesday’s hearing.
TransPecos had sued Papa Grande and principals Kenneth and Hilda Garcia on Feb. 5, alleging the company was insolvent or “in imminent danger of insolvency” and in need of $1 million “to stay viable.”
Ron Smeberg, Papa Grande’s bankruptcy lawyer, said in an email that the company experienced growing pains as it tried to move from a “mom and pop” business to a “more corporate structure.”
“While restructuring in Chapter 11, Garcia Foods is working to be more efficient and more technologically advanced, while expanding into new markets and staying family focused,” Smeberg said.
Austin attorney Cleveland Burke, who represents TransPecos, said the bank had no comment.
Garcia Foods makes barbacoa, tamales, fajitas, chorizo and other products that are sold at H-E-B, Walmart, Target and other retailers. It also makes products for food-service companies.
Papa Grande has filed an “emergency motion” with its bankruptcy petition asking for court authority to use cash that serves as collateral for loans from TransPecos. The company wants to use the money for ordinary business expenses, including wages and insurance. It pays workers on Fridays. A hearing on the request is scheduled for Wednesday.
“Without access to cash collateral, Debtors’ operations will cease and it will not be able to make its insurance payments, and will not be able to pay its 88 (full-time and part-time) employees,” the motion says.
If that happens, Papa Grande adds, TransPecos’ collateral position will “deteriorate markedly.”
TransPecos has accused the companies of defaulting on about $6 million in loans. The companies also owe $1.6 million in unsecured debt and $110,000 in delinquent property taxes to Bexar County.
Papa Grande proposes paying TransPecos almost $7,000 a month for an equipment loan and line of credit. An affiliated company that owns Papa Grande’s headquarters building at 1802 Jackson Keller, KHRL Group, proposes making $23,440 monthly mortgage payments on the property. KHRL also filed for Chapter 11.
Garcia Foods has been in operation since 1956. Andy Garcia started the business with a $15 investment, making barbacoa with his wife on weekends in their garage, the San Antonio Express-News reported in 1994.
Kenny Garcia, one of six children, entered the family business and took over day-to-day operations in 1999.
A decade later, Kenny Garcia left the business to start Papa Grande with his wife, Hilda. In 2014, though, he bought Garcia Foods and merged it with Papa Grande. TransPecos loaned money for the purchase.
According to the emergency motion, sales had significantly decreased during Kenny Garcia’s absence from Garcia Foods.
The “decrease in sales created an unsuspected uphill battle for Kenny and Hilda Garcia,” the filing adds. Papa Grande was unable to pay its 2017 property taxes and entered into a payment schedule with the county.
Papa Grande says it had anticipated a “stronger tamale season” starting in October and planned to use revenue to catch up on its taxes.
“Unfortunately, the company ran into a cash crunch and (was) unable to purchase sufficient raw material to fully capitalize on the holiday season,” the motion says. “Papa Grande estimates that it lost out on $1 million of revenue and $250,000 in profit during the holiday season, which likely would have been sufficient to bring the property taxes current.”
Papa Grande renewed a $716,000 line of credit with TransPecos in December. Earlier this month, though, the bank accelerated all of the notes and moved to appoint a receiver, according to the filing.
The request for a receiver was “unwarranted” and led to the bankruptcy filings, the company says.
Papa Grande says it is “taking strong corrective action” to ensure a successful Chapter 11 reorganization. It has reduced annual payroll by $400,000 and cut its unsecured debt by $400,000. It also says it is working on new income streams by expanding its area of operation.
In addition, Papa Grande says TransPecos is “over secured” by about $4 million, based on the value of the real estate, equipment and money owed the company. The company says it generates $13 million in annual revenue.
Papa Grande is a “strong example of individuals working hard and building a business that can continue to last for generations to come,” the filing says.