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Judge Denies Knudsen Loan

September 19, 1986

LOS ANGELES (AP) _ A federal bankruptcy judge has denied Knudsen and Foremost Dairies operations a $5 million loan they termed essential to their continued operation.

The companies, which are owned by Los Angeles-based Winn Enterprises, filed for protection from their creditors under Chapter 11 of federal bankruptcy laws on Wednesday. That filing allows the company to continue operating while management tries to straighten out the its financial affairs.

Also covered by the Chapter 11 filing are two holding companies, Knudsen Foods Corp. and Kamco.

On Thursday, Knudsen asked U.S. Bankruptcy Judge Barry Russell to approve a last-minute $5,000 loan from Foothill Capital Corp. of Beverly Hills.

But attorneys for Citicorp Industrial Credit bank, which has been financing the company’s operation on a week-to-week basis, objected to the request because the loan’s terms would require that Foothill be repaid should the dairies go out of business.

Knudsen and Foremost owed Citicorp $155 million as of Thursday, according to Richard Berger, the bank’s attorney.

Russell agreed with Citicorp’s claim that allowing the proposed $5 million loan to have repayment precedence could, in effect, increase Citicorp’s losses by that amount.

″I’m not going to make Citicorp put up another $5 million,″ Russell said.

The judge urged Knudsen’s and Foremost’s creditors to try to work out an arrangement to provide the dairies with operating capital, which would eliminate the need for the $5 million loan.

He also signed an order allowing Citicorp to continue day-to-day financing of the company through Friday.

Earlier Thursday, farmers stopped milk deliveries to Knudsen when the company said it no longer could pay for the milk.

″Basically, as of today, they (Knudsen) are receiving no milk anywhere in the California system that we know of,″ said Richard Cotta, executive director of Western United Dairymen, a statewide industry group.

″We started receiving word late yesterday afternoon that they had no money to make payments with today,″ Cotta said from his Modesto office. ″No payments, no milk.″

Consumers probably won’t notice supply problems, even if the interruption in buying by Knudsen continues because ″other dairy companies will increase their output,″ Cotta said.

The dairies are the largest in the West, with operations in California, Arizona, Hawaii, Texas, Louisiana, Arkansas and Missouri.

Officials at Winn Enterprises refused to confirm that milk shipments had stopped or to discuss the company’s financial problems, said a spokesman, Simon Barker-Benfield.

The bankruptcy filing didn’t detail the companies’ debts, but Knudsen has had problems for over a year.

Knudsen has been dealing on a cash-on-delivery basis with dairy farmers since mid-July and owes them $36 million in milk ayments missed before then, Cotta said. .

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