An Ad Hoc Group of bondholders with investments in troubled New York-listed bunkering firm Aegean Marine Petroleum Network (Aegean, or, Debtors) on Thursday filed an objection at the U.S. Bankruptcy Court over a debtor-in-possession (DIP) financing facility offered by Mercuria to bail out Aegean.

“The Mercuria DIP Facility should not be approved because it is an insider transaction designed solely to benefit Mercuria and is not in the best interests of the Debtors’ estates,” they alleged in a court document seen by Manifold Times.

“Mercuria’s onerous insider DIP financing facility which, among other things, is designed to syphon value from the Debtors’ unsecured creditors for Mercuria’s benefit and facilitate Mercuria’s acquisition of all of the Debtors’ assets via an insider credit bid under Bankruptcy Code section 363.”

Mercuria has earlier agreed to provide more than $532 million in postpetition financing to fund the chapter 11 process and Aegean’s working capital needs. 

“Nominally, the Mercuria DIP Facility provides the Debtors with approximately $532 million in DIP financing,” claims the Ad Hoc Group.

“In reality, however, Mercuria will provide the Debtors with, at most, only an incremental $152 million of financing through revolving postpetition credit facilities and a new delayed draw term loan. The remaining $380 million of “DIP financing” is in the form of a roll up of Mercuria’s prepetition debt.

“Mercuria seeks to implement this roll up in an accelerated manner, with 50% of Mercuria’s prepetition debt to be rolled up automatically upon interim approval of the Mercuria DIP Facility and the remaining 50% of Mercuria’s prepetition debt to be transformed into postpetition debt through a ‘creeping roll up’ as prepetition receivables are collected during the early stages of these chapter 11 cases.

“If approved, the roll up would not only convert all of Mercuria’s prepetition debt into superpriority administrative expense claims, it would provide Mercuria with substantial credit enhancement.”

The group further alleges the Mercuria DIP Facility, and the path proposed by Mercuria in Aegean’s chapter 11 cases, “is a prime example of an insider transaction that should be subjected to heightened scrutiny to ensure a value-maximizing reorganization for all of the Debtors’ stakeholders.”

“Yet, since Mercuria entered into the MOU with the Debtors, Mercuria has sought to execute on its self-serving loan-to-own scheme.”

The Ad Hoc Group explained it had delivered a term sheet on July 6, 2018 to Aegean to provide up to $50 million in secured financing to address the November 1 maturity of the 2018 Notes.

However, Mercuria entered into a Memorandum of Understanding (MOU) with Aegean a day before on July 5, 2018 for a US$1 billion trade finance facility.

“From that point forward, Mercuria improperly exercised control of the Debtors to block any meaningful negotiation with other potential financing parties, refusing to consider restructuring proposals that would have avoided the need for the commencement of these cases,” they say.

“The MOU that was executed between Mercuria and the Debtors on July 4, 2018 was an overreaching agreement representing the first step in Mercuria’s scheme to take control of the Debtors.

“Pursuant to the MOU, Mercuria agreed to acquire the Debtors’ U.S. and global revolving credit facilities and, upon acquisition of the facilities, Mercuria would receive 30% of the Debtors’ common stock and the right to appoint a representative to the Debtors’ board of directors.

“From this initial agreement with Mercuria, it was clear that Mercuria was not interested in a traditional lender-borrower relationship but, rather, desired to—and started acting like—a controlling stakeholder of the Debtors.”

A timeline organised list of events preceding the current development have been recorded by Manifold Times below:

Related: Aegean Chapter 11: Creditor list shows exposure of 30 parties
Related: Aegean files for Chapter 11, Mercuria to be ‘stalking horse bidder’
Related: Aegean auditors alleges up to $300 million ‘misappropriated’
Related: Aegean: Forensic auditors target investigations on four companies
Related: President of Aegean to leave, effective November 15
Related: Rumours: Alleged changes at Aegean’s management
Related: Mercuria starts ‘sole lender’ arrangement with Aegean
Related: Aegean establishes new management committee
Related: Mercuria bails Aegean out with $1 billion credit
Related: Ocean Intelligence comments on Aegean credit downgrade
Related: Aegean shares down 71%, to face legal investigations
Related: Aegean audit uncovers $200 million account discrepancy
Related: Aegean unfolds several business developments
Related: Aegean drops founder, elects new board members
Related: Aegean requests for ‘additional time’ to file annual report
Related: Aegean welcomes new Chief Financial Officer
Related: Lawsuit filed against Aegean’s H.E.C. acquisition
Related: Aegean to offer ‘one-stop-shop solution’ with H.E.C. acquisition
Related: Aegean in $367 million acquisition of port reception facilities services group
Related: Aegean shareholders ‘gravely concerned’ over board’s silence
Related: Shareholders nominate ‘highly qualified’ candidates to Aegean board
Related: Aegean Marine Petroleum Network under shareholder pressure

Published: 9 November, 2018