Merit Functional Foods, which entered receivership March 1 after just two years’ operation, has sold all its remaining finished and raw inventory and directed much of the proceeds toward “full repayment” of its debt to its operating lender, CIBC.

That’s according to the latest report from Merit’s court-appointed receiver, PricewaterhouseCoopers (PwC), which said in its Nov. 14 filing that the sale process it launched March 13 “has not yet led to an executed purchase agreement.”

PwC’s Nov. 14 report included a supplemental document laying out the details of that sale process so far — but that supplement was ordered sealed in a Nov. 23 ruling by Court of King’s Bench Judge Chris Martin in Winnipeg.

Information in that supplement is “commercially sensitive” and “would cause serious and irreparable harm and prejudice to Merit’s creditors and stakeholders in respect of the disposition of the (Merit) assets,” PwC said in its Nov. 14 filing.

PwC said it doesn’t intend to keep the supplemental document sealed indefinitely, but at least until “such time as a sale transaction for the assets has successfully closed.”

Meanwhile, PwC said Nov. 14, its separate process to sell Merit’s remaining product inventory has yielded about $3.3 million, down from a valuation of $3.8 million estimated back in March.

The receiver said it has also collected about $571,000 of outstanding accounts receivable — about 93 per cent, with the other seven per cent now seen as “likely being uncollectable.”

In its previous report in late March, PwC had said CIBC was owed about $5 million plus interest, fees and other costs. That amount included a cash-collateralized $1.025 million letter of credit the bank had placed with the Canadian Grain Commission (CGC).

PwC had said in March that Merit’s records showed no farmers were still owed money for any crops the processor had in its possession. In its Nov. 14 report, PwC noted the CGC had released its CIBC-issued letter of credit later in March.

As of Nov. 17, PwC said, Merit was estimated to owe CIBC about $4.157 million — including the cash collateral CIBC still held from the CGC letter of credit along with interest and other costs accrued since the receivership took effect March 1.

CIBC, as Merit’s operating lender, had been deemed “first-ranking creditor in respect of accounts receivable and inventory” and was seeking a payment out of those net proceeds, PwC said in its latest report.

Merit’s other secured creditors have approved the use of those proceeds to pay CIBC in full, “in order to reduce the amount of interest and costs continuing to accrue with respect to the CIBC indebtedness.”

Merit had opened for business in early 2021, with major shareholders including Vancouver plant protein firm Burcon NutraScience, U.S. agrifood firm Bunge, and former executives of Hemp Oil Canada.

Burcon had said in April this year it planned to submit a bid for the Merit assets in co-operation with another plant protein company it didn’t name.

Merit’s two remaining secured creditors include Export Development Canada (EDC), which was owed about $58.6 million, and Farm Credit Canada (FCC), owed about $36.4 million — neither total counting interest or other costs that have accrued since March 1.

EDC and FCC were in a consortium of lenders, also including CIBC and Agriculture and Agri-Food Canada (AAFC), that had provided Merit with $95 million in debt financing starting in 2020.

AAFC’s contribution was a 10-year, interest-free $10 million loan from the department’s AgriInnovate program.

— Glacier FarmMedia Network

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Merit, whose major shareholders include Vancouver plant-based protein firm Burcon NutraScience, U.S. agrifood firm Bunge and former executives of Hemp Oil Canada, was placed into receivership March 1.

According to the first report from receiver PricewaterhouseCoopers (PwC), filed last Friday with Court of King’s Bench in Winnipeg, a “data room” has already been set up and an information brochure circulated to some prospective buyers. PwC said it also “may continue to identify and initiate contact with other such parties.”

PwC, in its report, said it will accept “qualified offers” for Merit’s assets until 4 p.m. CT on April 21, and expects to “determine the accepted offer” by April 28.

A “definitive agreement” would then be reached by no later than May 12, court approval granted by May 26, and a deal closed by “not later than May 31.”

Burcon, which has a 31.6 per cent stake in Merit, has already announced it will bid on the Merit assets.

In a separate release Thursday, Burcon said it’s since been in discussions with the receiver, “continues to conduct due diligence and is furthering its efforts to put forth a compelling bid” to PwC for the Merit assets.

However, Burcon added, it “expects there to be other competing bids” and “there is no assurance that Burcon’s bid will be accepted by the receiver.”

Merit’s secured creditors include Export Development Canada (EDC), owed $58.6 million plus interest, fees and other costs; Farm Credit Canada (FCC), owed $36.4 million plus similar costs; and CIBC, owed $5 million plus costs. Unsecured debts owed to trades and other creditors as of March 1 were estimated at $2.4 million.

The Canadian Grain Commission is also running an audit to see if CGC-licensed Merit still has any “outstanding liabilities” owing to farmers who delivered crops to the plant, PwC said.

However, PwC added in its report, according to Merit’s records, no farmers are owed for any crops that Merit “has purchased and are in its possession.”

PwC last month laid off 77 Merit employees; kept on 23 “key” staff under agreements running mostly to the end of this month at the latest; and retained three former managers on an “independent contractor” basis.

Three of the “key” staff have since quit, while others continue to maintain the plant, handle product sales and accounts receivable and help in the sale process, PwC said.

PwC said last Friday that as of March 1, Merit had about $3.8 million worth of inventory — about $2.7 million of which has since been invoiced awaiting payment before delivery. About $231,000, or half of Merit’s other outstanding receivables, has also since been collected.

Built starting in 2019, Merit’s 94,000-square-foot plant opened in early 2021 and began accepting canola and yellow peas to process product lines such as Puratein canola proteins, Peazac pea proteins, and MeritPro protein blends using Burcon’s protein extraction technology.

In 2021 Merit had projected it would be able to eventually expand to take up to 100,000 tonnes of canola and peas per year.

EDC, FCC and CIBC were members of a consortium of lenders — also including Agriculture and Agri-Food Canada — who altogether had provided Merit with $95 million in debt financing starting in 2020. AAFC’s contribution came in the form of a 10-year, interest-free $10 million loan from the department’s AgriInnovate program.

Merit in 2020 had also picked up $9.5 million in support from the Protein Industries Canada supercluster to back product development.

EDC and FCC filed Feb. 24 for a receivership order, saying Merit was “suffering significant cash flow shortages” during the first three quarters of 2022.

The two Crown-owned lenders said in their filing that they expected Merit to run out of operating cash by around March 3 or 4 and it would then “no longer be able (to) operate its business as a going concern.” — Glacier FarmMedia Network

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Two days after Merit entered a court-ordered receivership, Vancouver-based Burcon NutraScience announced Friday it “intends to submit a formal proposal to acquire the business.”

Burcon said Merit’s receivership “was an anticipated step in the process of addressing Merit’s financial situation” and “does not alter” Burcon’s plan to buy the business.

Burcon, whose current ownership stake in Merit is about 31.6 per cent, said Friday it “remains actively engaged in discussions” with PricewaterhouseCoopers (PwC), Merit’s court-appointed receiver.

The receivership was requested in a Feb. 24 filing by federal lending agencies Export Development Canada (EDC) and Farm Credit Canada (FCC), who in 2020 provided debt financing toward Merit’s construction and start-up. In their filing, they put the principal and interest owed to them at about $58.5 million and $36.5 million respectively.

Burcon, whose ownership group also includes U.S. agrifood giant Bunge and former executives of Hemp Oil Canada, said it “believes that it is in a unique position to bring Merit’s business to profitability.”

“Merit’s facility was designed and built to produce protein ingredients using Burcon’s technologies,” Burcon CEO Kip Underwood said in the company’s release Friday. “Merit’s business is a strong strategic fit for Burcon by providing additional revenue sources, better connection to customers and markets, and direct influence over the manufacture of Burcon’s protein ingredients.”

Burcon said it has the “process engineering expertise to improve bottom line performance through production efficiency gains” and can leverage its “innovation portfolio” to launch “new plant proteins beyond pea and canola.”

Merit’s co-CEO Ryan Bracken had said in a LinkedIn post on Wednesday that “while our proteins have been formulated into countless products globally, we couldn’t quite get to the level of cashflow needed to operate the business profitably, quick enough.”

EDC and FCC had said Feb. 24 they expected Merit to run out of operating cash by around March 3 or 4 and would then “no longer be able (to) operate its business as a going concern.”

The construction of the Merit plant in Winnipeg’s CentrePort industrial park came during the rise of the COVID-19 pandemic in North America, which Bracken said meant that “we started up prior to understanding the full impact of what COVID could do to our business plan.”

The pandemic and other factors ultimately led to a “doubling” of input costs, border closures, customers shuttering their own research and development facilities, interest rates “rising exponentially” and lenders and investors becoming more risk-averse, he said.

In all, he said Wednesday, the company’s move into receivership spells “the end to Merit as it stands today.” — Glacier FarmMedia Network

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