Knudsen Talks With Bankers

Knudsen Foods, the West’s largest dairy, met with its bankers into Wednesday evening in an effort to obtain financing for its day-to-day operations beyond its present July 27 deadline.

Knudsen’s banker, Citicorp Industrial Credit Bank, has guaranteed payments to dairy farmers and other suppliers to permit the Los Angeles dairy products company to operate through Sunday. Knudsen has said that it needs $20 million a week to keep going.

On Tuesday, Knudsen’s lenders met with about 100 creditors owed more than $1 million. The meeting resulted in “no new commitments� from Citicorp, said John Vanderschaff, president of Los Angeles Mutual Dairymen, a cooperative that supplies milk to Knudsen.

Vanderschaff, who met with bankers at the Holiday Inn-Crowne Plaza hotel, said dairy farmers were additionally told that they would not receive $18 million in payments for milk delivered to Knudsen between July 1-15. That payment is due Monday.

“They said we would get paid when the company is sold, and then we would stand in line behind all the other unsecured creditors to get our money,� Vanderschaff said, refering to a conversation with bankers from Citicorp, who couldn’t be reached Wednesday for comment. Vanderschaff said dairy farmers expected to learn today whether Citicorp would continue to guarantee milk payments to farmers.

A Knudsen spokesman had no comment.

Knudsen, which faces an involuntary bankruptcy court action, said previously that it may sell all or part of the company to reduce its debt. The company, which has annual sales of about $1 billion, owes Citicorp about $150 million.

Knudsen previously said it may file for protection from its creditors under Chapter 11 of the U.S. Bankruptcy Code, which would enable it to continue operating while developing a plan of reorganization.

The ailing dairy products firm missed an earlier $18 million in payments to dairy farmers on July 14. Since July 16, Knudsen has been paying California dairy farmers on a cash-on-delivery basis to ensure a continued supply of milk.

Martin S. Zohn, an attorney for International Paper and two smaller Knudsen suppliers that filed the involuntary bankruptcy petition against Knudsen, called Tuesday’s meeting “positive� and said suppliers other than dairy farmers have formed a creditors committee to meet further with Knudsen.

Zohn said additionally that International Paper and the two smaller suppliers have agreed to ask a bankruptcy judge to convert their involuntary bankruptcy petition from a Chapter 7--or liquidation--f iling to a Chapter 11 proceeding. He downplayed the significance of that move, however, in noting that Knudsen has the right to convert the petition itself.