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Plans to temporarily lease two grain elevators owned by Garcia Grain Trading Corp. as it maneuvers through a Chapter 11 bankruptcy restructuring hit a snag Friday when the lessor reneged on part of the deal.
Just last week, a federal bankruptcy judge allowed Donna-based Garcia Grain to lease its Santa Rosa and Progreso grain elevators to a Harlingen company called Texas Valley Grain LLC just as the summer harvest of sorghum and corn ramps up.
Texas Valley Grain was set to lease the elevators through Feb. 29, 2024.
Earlier this week, however, Texas Valley Grain notified Garcia Grain’s bankruptcy attorneys that they wanted to back out of the Progreso lease after getting a better look at storm damage there.
“We were in the process of preparing that agreed order on Monday when we learned that Texas Valley Grain had conducted an inspection at Progreso,” Garcia Grain attorney David R. Langston said during an emergency hearing held via Zoom on Friday.
As Langston had explained during a similar emergency hearing last Wednesday, the late-April windstorm wrought so much damage that Garcia Grain’s insurer has already cut a $250,000 check to fund repairs.
On Friday, he further expanded on just how badly the facility was impacted.
“(It) significantly reduced the capacity and also incapacitated a lot of the machinery and apparatus that is necessary to actually move the grain,” Langston said.
And that, in turn, had implications for Texas Valley Grain because, under the terms of the lease agreement, the company would be obligated to move 25,000 metric tons of grain through Progreso by Aug. 31, lest the lease be terminated early.
Both the Santa Rosa and Progreso elevators require some repairs. In Santa Rosa, one silo needs a new ring. It’s a repair that can be completed in short order.
Damage from the windstorm, however, had reduced Progreso’s storage capacity to just 7,000 metric tons.
In the company’s statement of assets, Garcia Grain claimed that Progreso originally had a capacity of more than 2.8 million bushels of grain, which is the equivalent to more than 71,000 metric tons.
And in court last week, Langston said he had been assured that Texas Valley Grain could nonetheless meet the 25,000 metric ton minimum despite the elevator’s reduced capacity.
As the deal began to fall apart last week, one of Garcia Grain’s secured creditors, a McAllen agricultural tech company called GrainChain Inc., approached with an alternate solution: lease Progreso — and potentially other elevators — to a different company.
“We were introduced to a company by the name of Elkins Grain Company, who has indicated an interest in leasing not only the Progreso facility, but possibly both the Edcouch facility and the Donna Val Verde facility, as well,” Langston said.
To that end, Garcia Grain sought the court’s permission to make the switch and allow Edinburg-based Elkins to lease the Progreso elevator in Texas Valley Grain’s stead.
However, Garcia Grain’s largest secured creditor, StoneX Commodity Solutions, balked at the 11th hour solution since they had not yet had sufficient time to analyze the proposal.
Ultimately, Garcia Grain asked the court to allow Texas Valley Grain to move forward with just the Santa Rosa lease, while intimating the gaggle of lawyers will need to meet again to discuss the Progreso and any potential additional leases.
Catherine Stone Curtis, the attorney representing GrainChain, said negotiations to that end continue.
“We’re working out the term sheet. We expect to discuss that with pertinent parties to try to move that forward on an emergency basis next week,” Curtis said.
Garcia Grain is pursuing the leases because it has been unable to operate its own elevators since the Texas Department of Agriculture canceled its operating licenses earlier this year.
The bankruptcy proceedings also put a halt on its ability to sell the grain at its flagship elevator in Progreso that was already being stored there at the time of the bankruptcy filing.
On Friday, the company walked back that request, citing its lack of insurance coverage.
“We are going to pull down any requests for continued use of cash collateral by the debtor because we will not be using any cash collateral until we obtain some insurance,” Langston said.
Garcia Grain has been without insurance coverage since June 1. Its insurers notified the company weeks in advance that they would not be renewing their policies.
With Texas Valley Grain backing out of the Progreso lease, Garcia Grain’s inability to find new insurance carriers has now impacted another of the orders the court granted last week.
The court permitted the company to continue using its limited cash reserves to sell the Progreso grain via brokers in Mexico, in part because Texas Valley Grain would be operating that elevator.
“Those operations will have to cease until we can come back before the court and demonstrate the insurance or reach an agreement” with another lessor, Langston said.
