Dairy processor files for reorganization

Citing what its chief executive officer calls a "perfect storm" of difficult financial conditions, Western Dairy Specialties of Yerington seeks to reorganize under Chapter 11 of the federal bankruptcy code.

Mike Compston, the company's CEO, says difficulty in securing working capital at affordable rates and grocers' hesitancy to switch suppliers at a time of sagging retail sales led to the dairy's closure in December and bankruptcy filing this month.

A compounding factor, he says, was stiff competition among retailers that cut milk prices and eroded the dairy's profits.

The $40 million facility opened in May of 2008 and employed 56 at its peak.

"We were viewed as a startup company and viewed as a higher risk, so we were not able to secure financing in the capital markets," Compston says. "Retailers were reluctant to change their product lines and have any disruption. Rather than stay with a ramp-up schedule, they essentially froze what they were doing and stayed with the suppliers they had."

The plant was among the first in the nation to use a new design for gallon and half-gallon milk containers. The squared-off jugs replaced shipping crates and were expected to reduce shipping and handling costs.

The company expected to distribute 780,000 gallons of milk a week to retailers within a 500-mile radius of Yerington.

Compston says if the milk processing plant hadn't opened during an economic downturn it would have had better access to working capital and a stronger position in securing placement in new markets. Western Dairy Specialties seeks to sell the facility to another company or restructure its debt so that it can reopen later this year.

The processing plant's closure leaves a large void for Mason Valley and Fallon-area dairymen. Compston says many northern Nevada dairymen are shipping their milk to be processed in California, and the additional shipping costs are estimated at $4 million per year, he says.

"We think we are a very important part of the local economy, and we are doing everything we can to restructure and get the facility open again."

Bankruptcy court documents show that Western Dairy Specialties has assets between $10 million and $50 million, with debts in the same range. Its largest creditors include Iron Springs Transportation of McCarran ($605,398), Golden State Milk Producers ($338,718), RHP Mechanical Systems ($198,000), NV Energy ($163,778) and All Star Dairy Association of Lexington, Ky. ($155,781).

Western Dairy will be represented in bankruptcy court by Sally Armstrong of Downey Brand with Maupin Cox & Le Goy providing business counsel.