Flying J's 'Winter' Financing

Seeks $10 million to sell fuel; court also OKs severance payments from layoffs

Greg Lindenberg, Editor, CSP

OGDEN, Utah -- Debtors of bankrupt oil company Flying J Inc. filed a motion last week with the U.S. Bankruptcy Court for the District of Delaware seeking financing for Flying J and its Longhorn Pipeline Inc. subsidiary to obtain up to $10 million of loans from Merrill Lynch to facilitate the sale of more than 900,000 barrels of "winter mix" diesel and gasoline that could go to waste if not sold soon, court documents obtained by CSP Daily News showed.

The court papers said, "Without access to additional financing, the debtors are unable to ensure the flow of the [image-nocss] winter mix product through the pipeline for sale before the end of the winter season. If the debtors are unable to push the winter product through the pipeline before the end of the winter season, they will lose the ability to sell such product since winter mix can only be sold during the winter season. On the other hand, pushing the winter mix product through the pipeline and selling it before the end of the winter season will preserve the value of the...product, generate profits and enhance the debtors flexibility in maximizing the enterprise value of the pipeline and associated businesses of the debtors, all to the benefit of the debtors' estates and stakeholders."

The documents said that at current prices, the sale could generate $9 million in profit.

Flying J filed for Chapter 11 bankruptcy relief on Dec. 22, 2008. The filing would allow the truckstop chain company to address near-term liquidity needs brought about by the precipitous decline in oil prices coupled with the disruption in the credit markets. (Click here for previous CSP Daily News coverage.)

Although the company originally said there would be no layoffs, "approximately 140 employees have been laid off from Flying J corporate and selected, nonrefinery divisions," a Flying J spokesperson told CSP Daily News. "In addition, our refinery in Bakersfield, Calif., has laid off approximately 120 people."

The spokesperson added, "Since the layoffs are widely dispersed and mostly related to corporate support, pipeline or refinery operations, we don't expect customers to see any effect on the services Flying J provides."

On February 20, Flying J has issued the following update on severance payments: "Flying J is pleased to report that it has received approval from the bankruptcy court to issue severance checks to its employees who were recently laid off as a result of industry related economic conditions and Flying J's chapter 11 filing. Checks are currently being prepared and they are expected to be in the mail today. We also received court approval to provide outplacement services, which will begin as soon as they can be scheduled."

Meanwhile, one day after Flying J filed for bankruptcy in December, the Federal Deposit Insurance Corp. (FDIC) prepared to pull federal bank insurance from the Transportation Alliance Bank (TAB), a Flying J subsidiary. To avoid such an outcome, the Flying J and its financial subsidiary agreed to obey a list of checks and balances the FDIC plans to use to ensure the bank's viability, reported Land Line magazine.

TAB provides the chain's fuel and diesel purchase cards for truck drivers and recreational vehicle users and provides financing for truck equipment purchases.

On Dec. 23, 2008, the FDIC filed a cease-and-desist order on the grounds that Flying J faced "alleged charges" of "unsafe or unsound banking practices and violations of law and/or regulation that have or may arise at the bank by reason of the financial deterioration of Flying J Inc."

TAB agreed not to loan the Flying J money and signed the cease-and-desist order saying so. Also, within 15 days of the Dec. 23 order, TAB agreed to provide the FDIC a contingency plan "that ensures the continuous, appropriate and satisfactory servicing of all loans held by the bank that is acceptable to the bank," the order read.

The order formally prevents the bank from providing any "extension of credit, "covered transaction or "transaction covered" to Flying J or any other affiliate of the bank.

"Violations of any provision of this order will be deemed to be conducting business in an unsafe or unsound manner and will subject the bank to further regulatory enforcement action," the order read.

In other Flying J news, on January 5, the debtors asked the bankruptcy court to stay proceedings in a lawsuit pending before the Federal Energy Regulatory Commission (FERC) that the oil company claims distracts from its reorganization effort, reported Law 360.

Flying J's adversary complaint asks the court to enforce the automatic stay of the Bankruptcy Code to enjoin Valero Marketing & Supply Co. from further prosecution in an action currently pending before a FERC administrative law judge involving Valero's access to the Longhorn Pipeline.

Click herefor additional coverage of Flying J's bankruptcy. Also click here.

Ogden, Utah-based Flying J operates more than 240 retail locations, including travel plazas, convenience stores, restaurants, motels and truck service centers in 41 states and six Canadian provinces. In addition to the usual truckstop services such as food, diesel and gasoline and showers, the company offers banking, bulk fuel programs, communications (WiFi) fuel cost analysis insurance and truck fleet sales. It also explores for, refines and transports petroleum products.