The Ad Hoc Group of Aegean's creditors present a different view of its fiscal puzzle. Image Credit: Ship & Bunker / Pixabay
Yesterday's Chapter 11 bankruptcy of Aegean Marine Petroleum Network [NYSE:ANW] is part of an aggressive "loan-to-own strategy" by Mercuria Energy Trading Limited (Mercuria) aimed at taking cut-price control of the bunker supplier's assets, the so-called Ad Hoc Group (AHG) of Aegean's creditors have claimed.
The group say they represent approximately 60% of $267 million in outstanding convertible Notes, some $95 million of which had been due last week and the balance in 2021.
And in court documents filed today, AHG painted a very different picture of the commodities trader's relationship with Aegean than the one previously presented by the bunker supplier.
"Despite the Debtors' championing Mercuria as their savior, the Mercuria relationship has been detrimental to the Debtors and resulted in the commencement of chapter 11 cases designed to complete Mercuria's acquisition of the Debtors' assets at less than fair value," AHG wrote, suggesting there are three phases to Mercuria's plan.
Ad Hoc Group
Mercuria then used these advantages to exert complete control over the Debtors for its sole benefit and to the detriment of the Debtors' other stakeholders
The first phase was the August deal that provided Aegean with $1 billion of much needed financial support. This, AHG says, not only saw Mercuria become Aegean's sole lender but amongst other things "obtained exclusivity rights over virtually all financing transactions" and "dictated who the Debtors could and could not pay and when," as well as imposing a $10 million "break-up fee" in the event exclusivity terms were breached.
"Mercuria then used these advantages to exert complete control over the Debtors for its sole benefit and to the detriment of the Debtors' other stakeholders," AHG wrote.
Phase two of Mercuria's alleged loan-to-own strategy involves the approval of Mercuria's debtor-in-possession (DIP) financing facility. This, says AHG, "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."
So-called 363 sales afford the debtor-in-possession a greater degree of control when it comes to selling assets, compared to a trustee under a Chapter 7 liquidation bankruptcy.
AHG also questions the $532 million Mercuria says it is providing Aegean in DIP financing, claiming it to be only an incremental $152 million of postpetition financing, with the remaining $380 million a roll up of Mercuria's prepetition debt that it intends to transform into postpetition debt.
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
The group suggests this would put Mercuria in a strong position for phase three, the acquisition of Aegean's assets at less than fair value.
"Among the primary assets that Mercuria seeks to acquire through its loan-to-own strategy are the claims and causes of action arising out of the fraud perpetrated on the Debtors by a former affiliate and certain of the Debtors' former officers and directors," AHG claims.
As previously reported by Ship & Bunker, after initially believing it had uncovered $200 million of suspect transactions, last week Aegean said up to $300 million of its cash and other assets were misappropriated through fraudulent activities that started as early as 2010.
AHG says it attempted to work with Aegean as early as June to provide a restructuring solution for the Notes, but claims that from the outset of Aegean's initial MOU with Mercuria on July 4, 2018, "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."
AHG said it provided its initial restructuring proposal to Aegean one day after the public announcement of the Mercuria / Aegean deal.
"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," AHG wrote.
The group have called on the court to approve a raft of modifications to Mercuria's DIP financing plan and "expects that there will be a full and extensive investigation into Mercuria's undue control over the Debtors and bad faith conduct during the months leading up to the commencement of these chapter 11 cases."