Meat company bankrupt

By Andrew Gomes
Advertiser Staff Writer

Hawai'i's largest meat-processing company and its affiliated food distribution business filed for bankruptcy protection yesterday, thesecond multimillion-dollar kama'aina firm to seek Chapter 11 saying the effects of the war in Iraq crippled major expansion plans.

Joe Azzaro Jr., vice president of Palama Meat Co., stands by some automated meat machines at the processing plant in Campbell Industrial park. His father, the chief executive, bought the company six years ago. Advertiser library photo

The companies — which supply more than 1,000 accounts including supermarkets, restaurants, wholesalers, military commissaries and the state Department of Education — said business would continue as usual for customers and about 160 employees while its finances are reorganized.

"We will go forward," said Joseph Azzaro Sr., chief executive of Palama Meat and a senior officer at the H&W affiliates.

Azzaro asked vendors and suppliers to be patient during financial restructuring of the companies, which have estimated assets of $15 million to $25 million.

"We have a good, solid business, and because of it we're looking forward to the future," he said.

That future is drastically unlike the one Azzaro envisioned six years ago, when the meat-packing industry veteran and owner of H&W Foods bought Palama Meat.

Growth falls short

Azzaro, a state Entrepreneur of the Year in 2000, integrated manufacturing and distribution and built an $8 million meat-processing facility in Kapolei that opened in May 2001.

Sales were projected to rise to $100 million by 2006 with the introduction of more than 100 new items available to some 800 food-service accounts and about 500 retail accounts.

Sales increased from $62 million in 2000 to more than $66 million last year, but the disappointing gains strained the company financially.

Signs of further loss began to appear in February with the lead-up to war, Azzaro said.

"Our caterers and hotels just crashed. We prepared for great growth and expansion by building a new plant, and 9/11 came along," he said. "... We never made it back."

Azzaro said in court filings that cost overruns to build the Kapolei plant, combined with expenses related to Palama Meat's old plant on Waiwai Loop near Honolulu International Airport, created a $2 million burden.

The H&W and Palama Meat companies follow Hawaiian Airlines, which also is seeking court protection from creditors. Acquisition of a new aircraft fleet was Hawaiian's main reason for filing Chapter 11.

As part of H&W's reorganization strategy, Palama Meat is asking the bankruptcy court to cancel its Waiwai Loop lease, which costs about $10,000 a month in rent but is subleased for only $2,300 a month. Other reorganization details have yet to be presented in court.

Bondholders exempt

Among creditors with secured priority claims are Bank of Hawaii, Marwit Capital Co. in California and LEG Partners SBIC in New York. The largest unsecured creditor of Azzaro's three companies is Bank of Hawaii, with claims of roughly $15 million.

Investors who bought bonds to finance the $8 million processing plant are not creditors, because Bank of Hawaii issued a letter of credit that acts like a guarantee to bondholders.

The tax-exempt, special-purpose revenue bonds authorized by the Legislature in 1998 and issued in 1999 are not an obligation of the state.

Palama Meat was established in 1970 and owns brands such as May's and Hawaiian Warrior. The company processes numerous meat items, including portion-cut steaks, beef jerky and 3.6 million pounds of ground beef a year.

Customers include Foodland, Safeway, Times, Costco, Sam's Club, Daiei, Tamura's, Marukai and hundreds of restaurants and food wholesalers. Palama Meat also has contracts to supply Subway, Wendy's and Hilton Hawaiian Village.

H&W Distributors delivers Palama Meat products, in addition to rice, sugar and a variety of bakery goods.

Another subsidiary of H&W Foods Acquisition, Hawaii Beef Packers Inc., is not part of the bankruptcy.

Reach Andrew Gomes at agomes@honoluluadvertiser.com or 525-8065.