A child-labor scandal has plunged a company owned by private equity titan Blackstone Inc. into a rapidly escalating crisis — and set off alarms.
(Bloomberg) — A child-labor scandal has plunged a company owned by private equity titan Blackstone Inc. into a rapidly escalating crisis — and set off alarms.
It began on Feb. 17, when the US Labor Department accused the company, Packers Sanitation Services Inc., of employing children as young as 13 in overnight cleaning shifts at meatpacking plants nationwide, exposing them to hazardous chemicals and dangerous equipment like back saws and head splitters. It fined the company $1.5 million.
But the toll mounted over the past two weeks. Two of Packers Sanitation’s biggest customers, Cargill Inc. and JBS USA, canceled contracts with the company, and there’s speculation that another, Tyson Foods Inc., could follow suit. Together, the three account for about 40% of the company’s revenue, according to people familiar with the matter.
The specter of a widening financial hit caused a sharp markdown in the price of a $1.2 billion loan extended to Packers Sanitation, known as PSSI. This week, its price tumbled by 40 cents on the dollar to 51.6 cents, a level that typically indicates a company is contending with deep distress, according to data compiled by Bloomberg.
Messages left for Tyson spokespeople weren’t returned. After the Labor Department’s announcement, PSSI said it has a zero-tolerance policy against employing people under age 18 and has taken steps to strengthen its controls.
“We don’t want a single person under 18 working for PSSI, period — and take extensive steps to prevent individuals at the local level from circumventing our wide-ranging procedures,” the company said in a statement.
The drop reflects the mounting concern about the company that Blackstone acquired in 2018, which has occupied a niche working with some of the nation’s biggest meat and poultry producers. It also speaks to the sway of investors on Wall Street who are quick to pull back from companies that run afoul of environmental, social and good-governance standards.
The company has drawn some scrutiny for years over the dangerous nature of its work cleaning meatpacking plants in overnight shifts. In 2017, Bloomberg Businessweek reported that it had among the highest numbers of severe injuries — defined as an amputation, hospitalization, or the loss of an eye — among the 14,000 companies tracked by the Occupational Safety and Health Administration in 29 states.
A Blackstone spokesperson said the company moved to improve its record after the aquisition by nearly doubling its direct safety spending, helping produce a nearly 60% reduction in recordable injury rate with OSHA.
The government’s child-labor allegations surfaced late last year, when the Labor Department said it found that PSSI violated federal law by employing minors in hazardous jobs, including cleaning dangerous power equipment. It said several, including a 13-year-old, suffered chemical burns and other injuries. A federal judge approved an order halting the practice, and the company was later fined.
In September, Moody’s Investors Service said PSSI generated about $1.2 billion of revenue and $51 million in free cash flow in the 12 months through June, though its credit ratings were deep into junk grade due to its high debt loads. Some of the borrowing was used to finance dividend payments to Blackstone. Since the acquisition, the company has made over $400 million in such payments, according to Moody’s.
As a services company, though, it has little collateral backing its loans, adding to the risk for investors.
On Monday, PSSI officials held a conference call with debtholders to go over financial results for the first quarter. The company, however, provided little forward-looking guidance on the company’s outlook, said people on the call.
–With assistance from Tarso Veloso Ribeiro and Tatiana Freitas.
(Update with a statement from Blackstone in the ninth paragraph)
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