WE all eat Dole pineapple and bananas. Dole is the largest fresh produce business in the United States. One of the tourist attractions in Oahu is the Dole plantation. The business was started by a young man who was able to buy large tracts of plantation land at the turn of the 20th century right after the queen of Hawaii was overthrown by our military at the instigation of local businessmen.
Mr. Dole was the nephew of the then governor of Hawaii. Within a few years, Dole became the largest exporter of pineapple and employer in Hawaii. The Dole family eventually sold off the business. In 2003, Mr. Murdoch, the current owner of Dole, took the company private in a $2.5 billion deal. He then used Dole as a "cash cow" to finance his other business ventures. He bought the Hawaiian island of Lanai and developed two resorts there, and a luxury health resort in Westlake Village. The resorts in Lanai are still losing money, reportedly at $20 million a year. Cost overruns have reached several hundred million dollars. Dole was used to guarantee a $205 million loan to the Westlake Village resort. Perhaps for a billionaire like Mr. Murdoch, hundreds of millions of debt may not seem significant, but even for a profitable company as Dole, $2 billion of debt may be a little too much to handle. As a result, Dole’s SEC filing last month says that it may be unable to generate sufficient cash flow to service it’s substantial debt obligations. Dole has annual gross sales of $7 billion and now has to service $2 billion of debt. The large amount of debt has dented it’s creditworthiness to such an extent that Dole had to pay interest of 13.875 percent to refinance $350 million of debt this year that only had $8.625 percent of interest. The additional 5 percent is almost 60 percent more of interest annually in absolute terms. Let’s do the math. $350 million at 8.625 percent is $30 million of interest but at 13.875 percent, the interest due is $48.5 million. That is $18.5 million more of interest that Dole had to agree to enable it to refinance the $350 million loan and replace it with another loan of the same amount at higher interest.
If Dole has to pay high interest rates, it means that its creditworthiness is now considered to be high risk. Mr. Murdoch plans to make a public offering of Dole shares to raise $500 million to be used to pay off debt but investors may be skittish because Dole owes $2 billion of debt. Dole’s core business of fresh produce is profitable. In fact, it announced last month that it has succeeded in reducing its net debt by $145 million during the 2nd Quarter and by $480 million, or 20 percent, over the last five Quarters. $480 million is a whole lot of pineapples and bananas! But it took Dole over a year to pay off 20 percent of it’s $2 billion of debt. Even if Dole operations continue to be in the black in the next 5 years feeding the world with it’s produce, it doesn’t mean that it’s debt level will go down to zero, in fact, it may even become larger than $2 billion in 5 years. Because Dole is being used to guarantee loans of the other projects of Mr. Murdoch that continue to lose money, and may not turn around if the recession stays. The problem is that even if the recession is said to be over, people continue to lose their jobs and do not get re-employed. The resort business may never see the light of day.
Unless you have the debt paying power of Dole, you should seriously consider wiping out your debt with a chapter 7 bankruptcy. If Dole is afraid of debt, you should be afraid of having debt too.
If you need debt relief, contact my office. I will analyze your case personally.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
( Published on September 19, 2009 in Asian Journal Los Angeles p. C4 )
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