Aegean Gives Details of Recent Struggles, Says it Has Been Operating at "Severely Limited Capacity" Since March

Wednesday November 7, 2018

Aegean Marine Petroleum Network [NYSE:ANW] has been operating at "severely limited capacity" since March 2018, the bunker supplier revealed as part of Tuesday's filing for Chapter 11 Bankruptcy in New York.

Many of the difficulties faced by Aegean in recent years have been covered at length in these pages, but documents filed Tuesday have shed new light on the supplier's recent struggles, not least of which being a battle that began at the end of 2017 between incumbent management and a group of discontent shareholders.

That finally came to a head in May, with Dimitris Melisanidis being ousted from the company he founded and the shareholder group's front man, Tyler Baron, moving onto the board along with allies Raymond Bartoszek and Donald Moore.

But before then, in March the group successfully prevented Aegean acquiring Melisandidis' port services company Hellenic Environmental Center (HEC).

While no doubt seen at the time as a victory for the shareholder group, concern over the proposed HEC deal, plus revelations in June it would likely have to write off $200 million in accounts receivable resulting from suspect transactions, all contributed to a reduction in the supplier's available credit that in May was reduced to $600 million from an earlier $1 billion.

It also saw the bunker supplier's market cap plummet more than 70%.

Ultimately, Aegean says this put the supplier on a downward spiral where an inability to fund inventory fed into an inability to adequately service customers that were then forced to go elsewhere for their bunkers. This lead to lower volumes and lower cash generation, which put further pressure on Aegean's borrowing and liquidity, which in turn fed back into an inability to fund inventory and so on.

The reduction in activity can be seen in independent analysis of Aegean's barge movements provided to Ship & Bunker by Bunker Metric that shows its activity in ARA started to tail off in May, and by June its weekly bunker deliveries had halved.

Things were so dire, in fact, that Aegean said on multiple occasions in June it had zero borrowing base availability and inventory in some of its key supply hubs had virtually run dry.

Mercuria

It was in July that Aegean then announced it had struck a $1 billion financial support deal with commodities group Mercuria and the supplier looked to start a new chapter.

The next obstacle was $94.6 million due to bondholders on November 1, 2018, with Joe Farricielli, a research analyst at New York-based boutique brokerage Odeon Capital, LLC, having told Ship & Bunker in June he thought Aegean would have to "pay dearly" to have them refinanced.

In apparently coincidental timing, on November 1 the Financial Times revealed certain details of the fraud investigation underway at Aegean. The following day Aegean released the results of its Audit Committee investigation, saying it now believes up to $300 million of its cash and other assets were misappropriated through fraudulent activities that started as early as 2010 and involved over a dozen company employees, including members of senior management.

But there was no word on the payment due to bondholders.

On Tuesday, Aegean revealed it failed to make the November 1 payment which also constitutes an event of default for $172.5 million of Notes that had been due in 2021. Aegean says it is also in default under its UAE loan facility.

Further, Aegean also revealed details of recent efforts to address the November 1 payment and on September 25, 2018 - shortly after news emerged that Aegean President Jonathan Mcilroy was in negotiations to exit the company - it entered into confidentiality agreements with an "Ad Hoc Group" of some of the holders of the Notes.

Also on September 25, 2018, Mercuria made a proposal to the Ad Hoc Group that offered a cash recovery equal to 31% of the face value of the Notes, which was countered on September 30, 2018.

"From October 23, 2018 to November 2, 2018, the Ad Hoc Group and the Company exchanged certain alternative financing proposals in connection with a comprehensive restructuring transaction," Aegean explained.

"Discussions with the Ad Hoc Group and/or its advisors regarding a potential transaction are ongoing."

On Tuesday Aegean filed for relief under Chapter 11 of the US Bankruptcy Code in New York to implement a "restructuring transition" with Mercuria who has agreed to provide $532 million in post-petition financing while it looks for a buyer.

Of the $296.4 million total owed to Aegean's top 30 unsecured creditors, 90% ($267 million) is owed to bondholders.