Hart Acre Grains

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Hansen-Mueller Sureties Face Scrutiny

Todd Neeley 9/25 9:02 AM

LINCOLN, Neb. (DTN) -- Hansen-Mueller Co.'s financier BMO Bank is unlikely to be paid in full for more than $50 million in loans made to the Omaha-based grain company, an attorney for the company told a U.S. bankruptcy court on Thursday, as the court wrestles with claims made by the bonding companies that they are entitled to grain proceeds.

U.S. Bankruptcy Court of Nebraska Judge Thomas L. Saladino appeared to be skeptical of legal theories put forward by bonding companies that disputed grain proceeds should be used to reimburse bond payments made to farmers in the ongoing Chapter 11.

Harco National Insurance Company and International Fidelity Insurance Company are seeking priority to grain proceeds over BMO Bank.

"BMO is not going to be paid in full?" Saladino asked Hansen-Mueller Co. attorney Brian Koenig, who responded by saying no.

"So anybody who has a lien junior to BMO is simply unsecured," Saladino said.

Koenig told the court BMO holds a perfected security interest in Hansen-Mueller's assets, but the value of the collateral is insufficient to pay BMO in full. Koenig argued that because BMO has a secured interest, the sureties' interests cannot come ahead of BMO.

The court has been asked to rule on who has superior claims to Hansen-Mueller's remaining grain proceeds and cash -- the surety companies, BMO or the bankruptcy estate.

Saladino pressed the sureties to explain how a general indemnity agreement grants them control of grain-sale proceeds.

The surety companies have been arguing that once Hansen-Mueller defaulted, surety obligations were triggered and the surety companies' rights relate back to when the bonds were issued, so the proceeds effectively belong to the surety companies.

The attorney for those companies, Shane Mecham, argued that grain-sale contracts are "bonded contracts" because they are part of Hansen-Mueller's licensed grain-dealer operations.

Saladino stated repeatedly during the hearing that he was "still struggling" to follow the argument.

At one point the judge interrupted and said, "Walk me through again how the general indemnity agreement gets you to the grain proceeds from Hansen-Mueller's sale of the grain."

The surety companies' case depends on convincing the court the grain-sale proceeds never became property of the estate.

Right now, the most significant issue standing in the way of Hansen-Mueller filing a Chapter 11 plan is the outstanding claims with its surety companies.

The bonds from the surety companies essentially guarantee Hansen-Mueller's debts and obligations, but the bankruptcy court has yet to determine the amount of the claims of those companies.

Koenig argued repeatedly that the surety company bonds cover the purchase of grain but do not cover resale transactions, putting grain-sale proceeds outside the language of the general indemnity agreement.

"The surety is a special creature," Koenig said during the hearing and suggested that the rules of secured financing shouldn't apply to a surety. "But I heard nothing that supports the proposition that we should upend traditional secured financing rules for the benefit of a surety. This court recognizes the trust language is insufficient because the bonds cover the purchase of grain and not the sale of grain."

Also pending before the court is a motion by Hansen-Mueller to extend a September deadline to file a Chapter 11 plan with the court to November. Extending the deadline would prevent creditors and other parties from filing competing bankruptcy plans.