A court has ordered prominent Alberta pulse buyer and processor W.A. Grain & Pulse Solutions into receivership.
Justice Douglas Mah of the Court of Queen’s Bench issued the order on April 26 at the request of ATB Financial and appointed BDO Canada as the receiver.
W.A. Grain & Pulse Solutions, founded by Chris and Tracey Chivilo in 2007, began by buying and selling peas. The company bought Bashaw Processors in 2012, built a second facility in Bowden two years later and then added three more facilities in Saskatchewan. As recently as March, Chris Chivilo said he was “pretty confident” he would soon have financing in place for construction of a pulse fractioning facility in Bowden — a project he had been working on for several years.
Around 100 farmers are known to be owed money for grain delivered to W.A. Grain, said Remi Gosselin of the Canadian Grain Commission.
“We have not commenced a claims process yet,” Gosselin said on May 3. “We’re simply collecting information from producers who are owed money.
“Based on our initial audit most of what was held in store was pulses, but the company also bought other crops.”
In some circumstances, a court-appointed receiver can operate a business but in this case, it is under strict conditions imposed by the grain commission. After suspending the licences of W.A. Grain in mid-April, the commission issued one grain dealer licence and five primary elevator licences on May 1 subject to a number of conditions, including not receiving or purchasing grain from farmers “or otherwise incur liabilities to grain producers.” Grain held in store can be sold by the receiver but the proceeds must be placed into an account that eventually will be used, along with security posted by W.A. Grain, to cover eligible farmers who weren’t paid for their grain.
It “will take several weeks to complete a final audit to determine whether there is enough security and grain inventory to compensate producers who are holders of primary elevator receipts and who are eligible claimants,” Gosselin said.
Farmers who delivered grain but haven’t been paid need to quickly contact the Canadian Grain Commission. To be eligible, claimants must have the proper delivery receipts and must make a claim within 90 days after delivering grain or 30 days after getting a cheque.
Three other Prairie buyers of pulses have experienced financial difficulties in the last two years, prompting the grain commission to revoke their licences and pay farmers using the companies’ posted security.
Industry observers say pulse crop buyers are generally more at risk of financial problems because most are small with limited resources; there are no futures markets for hedging purchases and sales; and pulse crop prices can often be more volatile. Right now it’s also harder to get the shipping containers used to export pulse crops.
In the case of W.A. Grain, documents filed by ATB Financial with the court suggest high debt coupled with currency hedging losses sparked by the onset of the pandemic abruptly changed the fortunes of the company.
In an affidavit, ATB said that as of late March, it was owed more than $11.8 million by W.A. Grain Holdings Inc. (the parent of W.A. Grain & Pulse Solutions and two related operations). The affidavit states ATB’s Turnaround and Restructuring Group had begun monitoring the company’s loans in June 2018 “primarily due to the debtors’ poor financial performance and history of requiring financial covenant waivers, largely stemming from low gross margins, tight liquidity and high leverage.”
In response, it says W.A. Grain focused on cutting costs and diversifying revenues, including selling organic pulses and setting up a pet food division. However, the pandemic brought more challenges, the most serious being when several currency hedging contracts were suddenly terminated in March and April of last year. The pandemic “took the financial markets by surprise and resulted in dramatic spikes in volatility and rapid depreciation of the Canadian dollar,” the affidavit states.
The termination of the hedging contracts meant the losses suffered by W.A. Grain were “realized” and the company needed to come up with millions to cover them. Some of the hedging losses were paid off and others were the subject of negotiations.
Still, during the fall of 2020, the company developed a debt reduction plan aimed at paying back both ATB and a secondary lender within two years, the affidavit states. The first step was to be the sale of the pet food division. The plan prompted ATB to extend additional credit to W.A. Grain in December 2020.
But the start of this year brought new setbacks, ATB’s affidavit states, including “significant realized and unrealized foreign exchange hedging losses that were not previously accounted for.” And critically, the tentative sale of the pet food division kept being delayed and was further complicated when the secondary lender insisted it receive some of the proceeds, the affidavit states.
The sale of the pet food division was the key to allowing W.A. Grain to keep operating and the final straw came when the Canadian Grain Commission suspended its licence on April 20, which effectively shut down the company.
The affidavit states the company owes about $6.5 million for “unpaid inventory.” But it suggests there will be funds left over to cover some — but not all — of the debt owed to ATB.