- The Washington Times - Sunday, December 21, 2003

MILAN, Italy (AP) — Italian dairy company Parmalat Finanziaria SpA will call a board meeting in the next few days to seek protection from creditors by declaring bankruptcy, a person familiar with the situation told Dow Jones Newswires yesterday.

The company, teetering on the edge of default, alarmed investors anew on Friday when it reported that Bank of America Corp. was not holding about $4.91 billion of its funds that the Italian company had reported in September. The letter guaranteeing the funds was fake, the bank said.

Parmalat Chairman and Chief Executive Enrico Bondi, who was brought in by company owner and founder Calisto Tanzi earlier this month when the dairy group’s financial problems worsened dramatically, was meeting yesterday with attorneys, accountants and advisers, the source said.

“Management will decide over the weekend what is the best [bankruptcy] procedure to protect the underlying business,” the person said on the condition of anonymity.

Under Italian law, companies can apply for two types of protection from creditors.

The board late Friday gave Mr. Bondi the authority to ask judges to give him time to come up with a plan of action for the company before considering any legal proceedings. Parmalat is working with Milan magistrates probing suspected accounting fraud.

Prosecutors are investigating whether a crime may have been committed in the case, and on Saturday police raided the Milan offices of Parmalat auditor Grant Thornton and removed boxes of documents.

Mr. Bondi and his team already have received expressions of interest from potential buyers, said the person familiar with the situation. But Mr. Bondi is disinclined to consider any offer now because he wants to avoid a fire sale, the person said.

The Italian government has said it may get involved.

“The situation is very serious,” Prime Minister Silvio Berlusconi said Saturday. “The government will intervene to bail out the company and save jobs.”

Mr. Berlusconi did not specify what measures the government would adopt.

The Italian system has been hit by the Argentine default and, more recently, by the crisis of another food company, Cirio Finanziaria, which defaulted on $1.3 billion of bonds, leaving 30,000 Italians with worthless paper and calling into question the role of regulators.

Friday’s Parmalat announcement confirmed investors’ fears that the company, which nearly defaulted on a $186.5 million bond last week, was in worse financial condition than stated on its Sept. 30 balance sheet.

It also fueled accusations by ratings agency Standard & Poor’s that Parmalat had misled investors.

Late Friday, S&P; downgraded Parmalat to D, its lowest rating, saying the company’s failure to buy out minority shareholders in its Brazilian subsidiary by a Wednesday deadline is a default under its criteria.

That could trigger a cross default on the company’s $7.3 billion in gross debt, though market participants said the company won’t be in default officially until a grace period passes on the missed payment.

Parmalat must make more than $124.4 million in bond payments in January and February, as well as meet a $248.7 million payment to a Brazilian subsidiary today, the Italian press reported.

Parmalat’s total debt as of Sept. 30 was about $7.3 billion.

Parmalat, which has an annual sales of about $9.2 billion, produces and sells milk, yogurt, juice and other food products around the world.

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