Replies to post #53 on KBK Capital Trust I 9.50% TruPS (fka KBKCP)

[Enterprising Investor]

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.

[Enterprising Investor]

Iconic San Antonio food company charts a turnaround under Fort Worth private equity firm (2/18/21)

By Patrick Danner

Officials at Fort Worth-based private equity firm Mission Consumer Capital had been eyeing an investment in the San Antonio maker of Andy Garcia Foods for at least four years but could never strike a deal.

Andy Garcia Foods had become an iconic San Antonio brand, producing tamales, chorizo and barbacoa. It had been around since the 1950s, when founder Andrew Garcia bought a small barbacoa business for $15. He and his wife, Dilia, began making barbacoa on weekends in their garage.

Their son, Kenneth Garcia, started running the business in 1999 and eventually bought it through his company Papa Grande Gourmet Foods in 2014. But starved for cash and under-invested in for three or four years, the business struggled, according to Mission managing partner Robert “Bobby” J. McGee.

The financial troubles of Papa Grande, which did business as Garcia Foods, pushed it into bankruptcy in 2019. Kenneth Garcia fought to hang on, but the business was put up for auction. Mission was the winning bidder with a $4.8 million offer.

Since taking control, Mission has spent about $5 million to revamp the San Antonio plant by installing new equipment, including a refrigeration system, cookers, ovens and a machine that allowed it to produce 5 million tamales from October through December.

The machine stuffs the meat in the masa, which is then sliced by a wheel cutter. Every tamale is still wrapped in corn husks by hand. Some 400 are wrapped per minute by 28 workers on the line.

“It is the fastest tamale line in the country — and I keep telling everybody, in the galaxy,” boasted Mitch LaBrasseur, chief operating officer for the new company, called Nuevo Garcia Foods.

Mission took ownership just a just a few months before the pandemic. It was immediately presented with various challenges — from restaurants shutting down to ensuring the coronavirus didn’t spread among workers in the plant. It has about 50 employees.

It’s in the process of introducing new food items, including carnitas — or slow-cooked pork — and shredded chicken breast in seasoned broth.

McGee, who also is Nuevo Garcia Foods’ chairman, 66, recently discussed the acquisition and what changes have been made since the deal closed. The following has been edited for brevity and clarity.

Q: What were you doing before you started Mission?

A: I spent about 20 years as a banker. I was a banker for many of the grocery store chains and food stores throughout the state of Texas and throughout the country. I was helping arrange acquisitions, and also arranging their financing. So a lot of capital market projects.

Q: Why did you start Mission?

A: A couple of things. One, I really liked the food business. Second, I think there’s a real opportunity to help small family businesses transition to be really good at selling to the larger grocery store chains. Today, there are more than 4,000 grocery store chains in the United States. The top 20 make over 80 percent of all grocery sales. I know most of them.

Q: What other businesses does Mission own?

A: We own Local Hive Honey company out of Colorado that sells local, raw and unfiltered honey all over the United States and in Europe.

Q: Is Mission’s small portfolio a reflection of how hard it is to do deals?

A: I would say we’re pretty careful. We’re not a huge fund (with $25 million in capital). We are very focused. We buy companies that we think have a lot of potential. And we spend a lot of time and capital with those one on one, as opposed to buying a 100 of them and hoping 90 of them work. We’re really involved in every one of them.

Q: What attracted you to Garcia Foods?

A: When you go through the grocery store check-out lane and they scan your goods, they’re not just doing that to ring up the prices. They capture all that data and then they sell it to the Nielsen Co. and a couple of other data firms. We buy that data.

In looking at that data, I can tell you that the Mexican food business is accelerating. And it’s accelerating at a more rapid rate than the Hispanic population is accelerating. Intuitive, I think, for people who live in San Antonio to understand that Mexican food crosses culture boundaries. Everybody likes Mexican food. And so we think authentic Mexican food - and I’m not using the word Hispanic, I mean Mexican when I say Mexican - authentic Mexican flavors are attractive to people of every kind of background. The data shows that’s true across the country, whether you’re in San Antonio or California or New Jersey.

We think there are very few good-for-you, already prepared Mexican food items in mainstream grocery (stores). We think there is an under-representation for those. So that’s what started us looking for someone who had the ability to make authentic Mexican foods. Let us help develop products that retain the authentic style and flavor, and whatever it is that makes that important to culture. But let us help get the ingredient deck clean and good for you. We’re kind of paleo. We want low carbs. We want things that are good for our families.

Q: This obviously was a turnaround situation. Do you prefer turnarounds or will you buy a high-performing business?

A: We don’t do turnarounds. This was. That was abnormal for us.


Q: Given the demand for Mexican Food, as you point out, why was the company not successful?

A: We see small food companies have real difficulty transitioning from founder to second and third generations, like every other business. First of all, you have challenges with generational transitions, which were acute here. And in all businesses, the world is changing very rapidly. You think of food as an aesthetic business, a subjective business. It’s about smells and textures and flavors and pretty packages. Those are subjective, aesthetic kinds of things.

But this is a difficult, low-margin business. It takes being able to read that data and present it to the retailers in a way they can understand. Many — I would say H-E-B is an exception to this — many of the largest grocery retailers today, when (Nuevo Garcia Foods CEO) Gantt Bumstead comes to see them, they aren’t as interested in looking at the product as you would think. They want to know, OK, it’s a great product, is this selling well in other places? You have to be able to analyze the data and compare it for them to the other things they have on the shelf.

Q: Is buying a company at a bankruptcy auction easier or harder than a regular sale?

A: Much harder. In this case, this company was in bankruptcy for almost a year. When employees don’t have adequate tools, when companies don’t have adequate cash, it’s awfully hard to make great products. So we had to retool every part of this and be sure that everybody had the tools they needed.

Q: How you have managed Nuevo Garcia Foods during COVID-19?

A: Nobody understood COVID (last winter). We understand some today. Not as much as we would like. We understood nothing when this first started. We were new. And we were coming out of bankruptcy. And there were 50 employees here who didn’t know us from anybody.

We brought a couple of emergency room docs in. They spoke Spanish. We spent two hours with the docs answering questions. And we asked the employees, “What do you want to do? We think this is a dangerous time. We don’t understand this virus. We have a choice. We can shut down. Or you are essential workers (who can continue to work). That’s what the governor says. And we have orders. H-E-B and other grocery stores are begging for meat products. What do you want to do?” They said they wanted to work. We said, “OK, how would you feel about wearing masks?” They said if we provided them, they would wear them.

And I remember saying, “What do you want us to do if somebody doesn’t want to wear a mask?” A lady said, “Fire them.” And I said, “How about we just send them home without pay?” They said, “Yes, do that.”

And then we said, “What we’re about to say next really scares us. For those of you who have been here for 40 years, if you didn’t work you didn’t get paid. There’s no sick leave in this company. From this second forward, if you get up in the morning and you don’t feel well, if you have any of these symptoms, it’s not only OK, we’re begging you, don’t come to work. Pick up the phone, call your supervisor. Just tell us you have those symptoms and we will pay you.”

Now, the reason that scares us is because somebody in this room is going to hear, “Let me see — I go out on the weekend and have a great weekend and I don’t feel so good on Monday morning. I can either go to work or not go to work and I can get paid the same amount of money. Let me think about that.” And so we said, “Please don’t abuse it. We’re trusting you in a way the prior folks here couldn’t and didn’t. Please don’t abuse it.”

I’m telling you, I think if there had been anybody who abused it, one of them would have killed them. They were so protective and appreciative. There was trust.

Q: Did you envision having to spend $5 million to upgrade the plant after paying $4.8 million to buy the company?

A: I can tell you that our estimate of what it would cost to fix the plant and what we spent to fix the plant was off by less $50,000 on a $5 million investment. What we missed was COVID. A big part of this company’s customer base are restaurants. So if you’re a Mexican restaurant in the San Antonio area, we probably make the chorizo for your breakfast tacos. We probably make the tamales that you serve. All of the restaurants were shut down. God bless them. How they survived that, I don’t know. But we were fortunate. We did have good, deep supply lines. We were able to get meat so that we could produce our customer orders on time. Remember, that was a huge item (for us), to restore our credibility of being an on-time, full supplier.

As grocery stores were running out of items because they couldn’t get access, particularly with proteins, with meats, we helped fill those shelves, and hopefully proved our credibility. But it didn’t make up for all the restaurant sales we lost.

Q: What are your goals for Nuevo Garcia Foods?

A: Our goal remains to build a nationwide Mexican brand. Not a homogenized Hispanic brand, but a true, authentic Mexican brand coast to coast.

https://www.mysanantonio.com/sa-inc/article/Iconic-San-Antonio-food-company-charts-a-15959555.php