Tyson Puts Entire Company Up as Collateral

One analyst says that Tyson Foods‘ move to put the whole company up as collateral under new agreements with its creditors is not an unusual one for a company going through a down cycle.

But this isn’t just any down cycle. The poultry industry is hurting bad, and the pork and beef businesses aren’t doing all that well either.

Nevertheless, Tyson’s reliance on pork and beef is just what is helping it weather the storm in poultry, where a massive oversupply helped force Pilgrim’s Pride, which is poultry-only, into Chapter 11 bankruptcy this month.

That oversupply, however, is exacerbated by Tyson’s unwillingness to limit production – a decision that was quite obviously designed to hurt Pilgrim’s Pride, but one that had investors and stock analysts shaking their heads in dismay. Moody’s downgraded Tyson last month, in part because of that strategy.

The loan agreements will make it easier for Tyson to maneuver for the next two quarters, the company said in a filing. But after that, the covenants will restrict Tyson’s spending more than even now. Much depends on what happens in the overall economy and in the poultry and meat markets in the next year.