Foreign Relations of the United States, 1958–1960, Volume V, Microfiche Supplement, American Republics

HO–21. Memorandum of Conversation, by the Officer in Charge of Honduran Affairs (Chaplin)¹

Washington, December 6, 1960

SUBJECT

• Standard Fruit Company Financial Difficulties

PARTICIPANTS

• ARA—Assistant Secretary Mann
• Mr. Roger Keefe, Vice President, Chase Manhattan Bank
• Mr. John Donalson, Loan Officer, Chase Manhattan Bank
• Mr. Douglas Smith—DLF
• Mr. Ralph Golby—DLF
• E—Mr. Anthony Geber
• ARA—Mr. Rosenson, Mr. Chaplin

Mr. Mann outlined the problems of the Standard Fruit Company and the acute political and economic problem for the U.S. in Honduras if Standard were to cease operations. He asked what were the plans of the Chase Manhattan Bank as the company’s largest creditor.

Mr. Keefe said that the Bank’s interest was not limited to the $5.6 million loan to the company, but included additional loans of over $1 million made to a Dutch corporation to finance refrigerated ships chartered to Standard. Standard is obligated to prepay charter fees if the borrower is unable to make payments on the ship loans. If Standard were to halt operations, there would be no charters for the ships, thus no payment on the ship loans, and the sale of the ships would not realize the amount of the outstanding loan balances on them. He added that the bank was looking for a purchaser for Standard’s collateral, stock in two breweries and a soap factory, but that it might take some time to find a satisfactory purchaser. He said that no matter how Standard’s financial problems may be resolved, he felt that the company should rid itself of the breweries and soap factory. The two crucial questions regarding Standard’s future in the bank’s eyes are how to overcome the political risks in Honduras, and will it be possible for Standard to stop its current losses. As matters stand, the company will be unable to meet its payrolls by the middle of January. Chase Bank itself does not engage in foreign loans, and the original loans to Standard were made against domestic assets which have now disappeared. Mr. Mann was then called away from the meeting.

Mr. Donalson said that an examination of the cash flow projection for 1961 indicates that the company should show a slight cash profit on its Honduran operation over the entire year, but that exclusive of debt payments becoming due, the company would need approximately $1.5 million new financing in 1961 for working capital.

Mr. Smith and Mr. Golby of DLF said that ICA or DLF are in a position to give guarantees against expropriation and civil disturbances, and asked what types of guarantees would be necessary for the bank to continue its financing of the company.

Mr. Keefe said that even if the political risks were covered, the grave commercial risk remained, and the key to the bank’s continued financing. If the ability of the company to stop its losses. If losses could be stopped, the bank would be willing to continue to carry the company, however the company needs additional funds to operate until it is known whether or not losses can be stopped.

Mr. Golby suggested that the bank might be able to consider DLF political guarantees for the $5.6 million coming due, with repayment guarantees for up to a given amount of new loans necessary for working capital. This situation would not involve a U.S. agency in financial supervision of the company and would appear to accomplish our policy ends. Mr. Keefe said this proposal was satisfactory as a basis for negotiation, and he would plan to return to Washington on December 8 for further discussions.²

1. Source: Department of State, Central Files, 815.2376/12–660. Limited Official Use.
2. According to Chaplin’s memorandum of conversation dated December 8, 1960, officials of the DLF informed Keefe and other representatives of the Chase Manhattan Bank that the DLF representatives had secured negotiating instructions along the lines of the proposals discussed on December 6 and were prepared to make specific proposals to the bank regarding political and repayment guarantees for any loans that the bank might make to the Standard Fruit Company. Keefe responded that the bank did not believe the DLF or ICA could offer political risk guarantees that would in practice satisfy the needs of Chase Manhattan. After an extended discussion of the question of economic guarantees, those present agreed that DLF would draft a guarantee agreement for the bank’s review. (815.05111/12–860) In a letter to Ambassador Burrows dated December 14, 1960, Chaplin summarized the results of the discussion that had occurred on December 8, informed the ambassador of Under Secretary of State Dillon’s determination to prevent Standard Fruit from going bankrupt, and stated that efforts were continuing to arrange a government loan if Chase Manhattan refused to offer additional financing to Standard Fruit. (ARA Files, Lot 66 D 94, “Correspondence, Ambassador Newbegin, Honduras 1960”)