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PPC announced today that it expects to report a significant loss in the FY4Q08. The company attributed the loss to high feed-ingredient costs, but more importantly to weak pricing and demand for breast meat. Our thesis on PPC was based on continued weakness in pricing because that was what the competition wanted – PPC to fail. As an aside, this was also the reason to be long BWLD.
Not surprisingly, Pilgrim's Pride also informed its lenders that it does not expect to be in compliance with its fixed-charge coverage ratio covenant under its principal credit facilities, but expects to be in compliance with all other covenants as of the fiscal year end. Importantly, Pilgrim's Pride believes it has reached an understanding with the agents under its credit facilities to temporarily waive the fixed-charge coverage ratio covenant through October 28, 2008, and to provide continued liquidity under these facilities during this same period.

I see very little value in the equity of PPC. Right now, the banks (Co Bank and BMO) are trying to hang on in hopes that the market recovers. PPC looks to be a big black hole. PPC is bleeding significantly, with debt of $1.5 billion and $1.0 billion dollars of inventory that can only be sold at a loss. The company will have little choice but to shut capacity, or try to sell some assets that are not worth much because they can’t produce products that make money. They only way out of this is for corn to fall below $4.00 and that is not going to happen anytime soon!