Ailing Knudsen Loses Albertson’s, Its Largest Customer, to Jerseymaid

Albertson’s supermarket chain, the largest customer of ailing Knudsen Foods, is switching much of its California business to Knudsen competitor Jerseymaid, the president of Jerseymaid said Thursday.

Ben Harrington said that beginning Monday, his Los Angeles-based dairy will begin processing milk under the Albertson’s label for 48 of the chain’s supermarkets in the state. “We’re happy about the business but not about the circumstances,” Harrington said. “Knudsen was a great name in Southern California.”

A spokesman for Knudsen, the West’s largest dairy operation, confirmed the loss of the Albertson’s account. Knudsen previously had disclosed that sales to Albertson’s account for about 10% of its business. Officials of Boise, Ida.-based Albertson’s were not available for comment Thursday evening.

Meanwhile, three major Knudsen suppliers on Thursday sought to force the ailing Los Angeles company into involuntary bankruptcy proceedings.

International Paper, which sells milk cartons to Knudsen, and two other firms asked in their petition in U.S. District Court in Los Angeles that Knudsen’s assets be liquidated to pay creditors under Chapter 7 of the U.S. Bankruptcy Code.

The New York-based paper company, which recently wrested Knudsen’s business from Weyerhaueser, said the dairy company owed it $4.4 million. Those familiar with Knudsen said that International Paper is the dairy’s largest unsecured creditor after the dairy farmers who supply Knudsen with milk. Knudsen missed $18 million in payments to dairy farmers on Monday.

Ted D. Nelson, chairman of Winn Enterprises, Knudsen’s parent, called the involuntary bankruptcy petition “unfortunate.” On Tuesday, company officials acknowledged that they had been unable to pay creditors and were considering a voluntary petition under Chapter 11 of the U.S. Bankruptcy Code, which would permit them to continue operating while working out a reorganization.

Knudsen officials continued to meet Thursday with lenders and others in an effort to restructure the company. According to those familiar with the talks, Knudsen sought agreements from all of its suppliers that dairy farmers who sell milk to Knudsen would get paid first.

On Tuesday, Citicorp, Knudsen’s chief lender, said it would cover the company’s payments to dairy farmers for seven days while negotiations continued. Nelson said Thursday that Citicorp had extended that commitment through July 27 while Knudsen holds talks “with qualified buyers who are able to bring stability to the situation.”

Martin S. Zohn, a lawyer for International Paper and the two other creditors who filed the involuntary bankruptcy petition, Hoffman Dairies and Star Blends, said his clients “weren’t happy with the way the talks were going.”

Hoffman Dairies, based in Tulare, Calif., said it is owed $400,000, and Star Blends, a St. Joseph, Mo., maker of stabilizers for ice cream and other dairy products, said it is owed $300,000.

Meanwhile, dairy farmers, fearing a further deterioration in Knudsen’s financial condition, continued to search for other buyers of milk. By late Thursday, one-third of the 63 dairy farmers in the Chino Valley who supply Knudsen had found another buyer for their milk, said Robert Feenstra, general manager of the Milk Producers Council in Ontario.

Knudsen has been in financial trouble since last September, when it reported that it had failed to pay some of its creditors and was trying to restructure its debt.

Since then, the company has said it is seeking a buyer for all or part of its businesses, which include dairy operations in California, Nevada, Arizona, Missouri, Texas, Louisiana and Hawaii. The company also owns a flavorings business and a small savings and loan in Utah.