Harvest Sherwood Food Distributors - Case Summary

Business Description

Prior to its Chapter 11 filing, Harvest Sherwood was the largest independent wholesale food distributor in the United States, generating approximately $4 billion in annual revenue. The Company operated a network of 14 distribution centers, shipping over 32 million pounds of food per week.

• Harvest Sherwood served a diverse customer base, including protein and perishable food producers, independent food retailers, regional and national retail chains, cruise lines, and other foodservice customers across the U.S.
• Its product portfolio included a wide range of commodities and branded selections such as beef, pork, poultry, seafood, deli, bakery, and frozen foods, catering to the needs of various niche markets and retailers of all sizes.

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Corporate History

Harvest Sherwood was formed in 2017 through the merger of two family-owned, regional food operators—Sherwood Food Distributors and Harvest Food Distributors—creating a national food distribution network. Following the merger, both companies retained their individual identities while leveraging a shared network of distribution routes and warehouses.

Sherwood Food Distributors

• Founded in 1969 as Regal Packing Company, Sherwood grew into one of the largest independent distributors in the meat and food industry.
• It operated a network of distribution centers in Atlanta, Cleveland, Detroit, Miami, and Orlando, comprising over one million square feet of refrigerated warehouse space.
• The company shipped over 20 million pounds of food products weekly using a fleet of more than 250 trucks.

Harvest Food Distributors

• Founded in 1989 as Harvest Meat Company, the business was established to provide independent food companies with access to national and regional brands.
• Its strategy focused on offering a wide selection of protein items to fit any demographic, which was quickly embraced by its customer base.
• Harvest served more than 6,000 retail and foodservice customers, including independent grocers, supermarkets, and club stores.

Ownership and Corporate Structure

• Debtor Del Mar Holding LLC is the direct or indirect parent of all other Debtor entities.
• The Company is privately owned by Del Mar Partners 2015, L.P., Del Mar Offshore Partners 2015, L.P., and the co-founders of the former Harvest Food Distributors.

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Operations Overview

Harvest Sherwood served as a critical link in the food supply chain, coordinating the flow of products from over 650 suppliers to nearly 3,500 customers. The Company’s robust infrastructure provided suppliers with a reliable path to a disparate customer base across the United States, offering volume and demand certainty.

• The Company maintained longstanding supplier relationships, averaging 25 years or more.
• Customers gained access to approximately 20,000 product offerings and value-added services, including ad planning and demand planning, to help optimize their merchandising strategies.

Harvest Sherwood’s historical customer base was divided into four primary segments: (a) independent and regional retail chains, (b) national specialty chains, (c) distributors and foodservice, and (d) cruise and travel. The Company’s strategic focus was on fresh product offerings for the store perimeter—such as meat, seafood, deli, dairy, and bakery items—which are key profit drivers for retailers and a primary destination for consumers.

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Prepetition Obligations

As of the Petition Date, the Debtors estimate total liabilities between $323.5 million and $558.5 million. The Company’s prepetition capital structure is summarized below:

Prepetition ABL Facility

• Approximately $79.1 million is outstanding under a revolving credit facility agented by JPMorgan Chase Bank, N.A. The facility, which initially provided for $350 million, is secured by liens on substantially all of the Debtors' assets.

Capital Provision Agreement

• In December 2022, the Company entered into a Capital Provision Agreement with Burford Capital, which provided $35 million for operating capital.
• The agreement creates an unsecured obligation for the Company to pay Burford Capital 100% of the first $35 million and 50% of the next $70 million of proceeds recovered from certain anti-trust litigation assets.

Unsecured Note

• The Company has an unsecured promissory note with a face value of approximately $9.4 million held by a former executive. The note was issued in November 2024 to resolve litigation related to an option agreement.

Trade and Other Unsecured Claims

• The Company estimates it owes between $200 million and $400 million to third-party suppliers, vendors, and other ordinary course unsecured creditors.

Litigation Assets

• The Company is a plaintiff in several significant litigation proceedings, which it considers key assets:
  • Anti-Trust Litigation Assets: Claims against several pork, chicken, and beef producers for alleged price-fixing, with asserted damages exceeding $1.1 billion (excluding treble damages).
  • Sprouts Litigation Assets: A breach of contract claim against Sprouts Farmers Market for withholding substantial payments, with asserted damages of approximately $42 million.
  • Goodman Litigation Assets: A fraud claim against a former sales employee for an alleged multi-year scheme to defraud the Company, with estimated losses potentially exceeding several million dollars.

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Events Leading to Bankruptcy

The Company’s path to Chapter 11 was driven by a combination of industry headwinds, critical operational failures, and a failed sale process that ultimately forced it to wind down operations. Key challenges included rising fuel, labor, and transportation costs, as well as shifting consumer demand patterns in a low-margin industry.

Strategic Review and Failed Marketing Process

• Beginning in mid-2024, the Company engaged advisors, including Houlihan Lokey, to pursue strategic alternatives. Houlihan conducted a marketing process for all or a portion of the Company’s assets, contacting 63 potentially interested parties.
• In October 2024, the Company received four indications of interest ranging from $175 million to $225 million for a subset of its distribution centers.
• However, following subsequent negative operational events, two bidders withdrew and the remaining two revised their offers downward in January 2025 to $42 million and $125 million, respectively. The Company deemed these bids unactionable as they were materially below the assets' liquidation value.
• Efforts to secure new third-party liquidity were also unsuccessful.

Critical Operational Failures

• Loss of Major Customer: In December 2024, the Company’s largest customer, Sprouts Farmers Market, communicated its intent to migrate to full self-distribution, eliminating a critical revenue stream.
• Credit Rating Downgrade: On Jan. 27, 2025, industry credit rating agency SEAFAX downgraded the Company to “Cautionary” status. This had an immediate negative impact, causing a substantial number of vendors and customers to place the Company on hold.
• Liquidity Crisis: Following the downgrade, Sprouts began withholding payments for goods previously delivered, ultimately withholding approximately $42 million. This sudden loss of operating revenue rendered all potential going-concern strategic alternatives unviable.

Orderly Winddown and Chapter 11 Filing

• With its liquidity depleted and sale process failed, the Company made the decision in mid-February 2025 to commence an orderly winddown of its operations.
• On Feb. 18, 2025, the Company issued WARN Act notices to its entire employee base of approximately 1,500 individuals, announcing a full shutdown of operations by April 21, 2025.
• During the winddown, the Company liquidated substantially all of its inventory, recovering approximately $140 million, and sold five of its distribution center operations.
• After facing an involuntary Chapter 7 petition filed by three creditors on April 18, 2025 (which was subsequently stipulated for dismissal), the Company determined that a Chapter 11 filing was the most effective process to maximize the value of its remaining assets—primarily its litigation claims and a Dallas distribution center—and manage claims from thousands of creditors.