BMO Bank is unlikely to recover in full the more than $50 million it lent to Hansen-Mueller Co., the Omaha-based grain company in Chapter 11, the company's attorney told a US bankruptcy court in Lincoln, Nebraska, on Thursday.

The court is being asked to decide who has the stronger claim to Hansen-Mueller's remaining grain proceeds and cash: BMO, the bankruptcy estate, or two surety companies, Harco National Insurance Company and International Fidelity Insurance Company, which made bond payments to farmers after the company defaulted.

The sureties argue that their rights date back to when the bonds were issued, so the grain proceeds effectively belong to them, and that grain-sale contracts are bonded because they are part of Hansen-Mueller's licensed grain-dealer business. Hansen-Mueller's attorney, Brian Koenig, said BMO holds a perfected security interest and that the bonds cover the purchase of grain, not its resale.

Judge Thomas L. Saladino appeared sceptical of the sureties' case, saying repeatedly that he was "still struggling" to follow it. When Koenig confirmed BMO would not be paid in full, the judge said anyone with a lien junior to BMO is simply unsecured.

The sureties' claims are the main obstacle to Hansen-Mueller filing a reorganisation plan. The company has asked to extend its September deadline for a plan to November, which would stop creditors filing competing plans. The report is by Todd Neeley.

Photo: bradleygee / Wikimedia Commons (CC BY-SA 2.0)

Source: DTN / Progressive Farmer