Lukoil to Pay Getty Petroleum $93 Million Over Station Transfers

If bankruptcy court approves settlement, Getty Realty will receive $32 million

Greg Lindenberg, Editor, CSP

NEW YORK -- Russian oil company OAO Lukoil has settled with Getty Petroleum Marketing Inc. Trust, the trustee of bankrupt Getty Petroleum Marketing Inc. (GPMI), for $93 million, based on claims of fraudulent conveyance and breach of the fiduciary duties, as reported Thursday in a Raymond James/CSP Daily News Flash.

The dispute relates to East Meadow, N.Y-based GPMI's 2009 and 2011 gas station deals with Lukoil North America LLC.

Plaintiff GPMI Trust's claims against the defendants--Lukoil Americas Corp., Lukoil North America LLC, OAO Lukoil and certain directors and officers of GPMI--arise from GPMI's transfer of certain assets to Lukoil in connection with the restructuring of GPMI and transfer of gas stations that they completed in Nov. 2009. The trustee alleges that in the transfer, the defendants intentionally siphoned off the valuable stations of GPMI to Lukoil, leaving GPMI with only unprofitable stations, with the specific intent of removing those valuable assets from the reach of GPMI's creditors, and that GPMI did not receive fair value for the assets.

In March 2011, Lukoil North America said that OAO Lukoil had transferred its interest in its wholly owned subsidiary GPMI to an unrelated party in Feb. 2011 for $120 million to focus on its own more than 600 Lukoil-branded stations in the Mid-Atlantic United States.

The trustee further alleges that the defendants then kept GPMI out of bankruptcy long enough to prevent GPMI's bankruptcy estate from asserting preference claims against the defendants for the return of the transferred assets or for payments made to GPMI's unsecured banks in connection with the Nov. 2009 transfer that benefited Lukoil. The trustee claims that because the Nov. 2009 transfer rendered GPMI insolvent.

GPMI's expert valued the assets between $241.8 million and $316.9 million, $121 million to $196 million more than what Lukoil had paid for them. The defendants' experts valued the transferred assets at approximately $100 million and that Lukoil had paid more than fair value for the assets.

GPMI also began a proceeding against Lukoil on Dec. 29, 2011. The complaint asserts causes of action for breach of contract, unjust enrichment and fraudulent conveyance based on Lukoil's failure to pay to GPMI a $6.295 million income tax receivable that it owed GPMI at the time Lukoil sold GPMI to Cambridge Petroleum Holding Inc. on Feb. 28, 2011.

If the U.S. Bankruptcy Court of the Southern District of New York approves the settlement, it will allow GPMI to "promptly repay" loans that it borrowed from real-estate investment trust (REIT) Getty Realty Corp., Jericho, N.Y., in order to finance the costs of the litigation, the court documents said.

Getty Realty agreed to loan GPMI up to $6.725 million to fund certain liquidating trustee expenses in connection with the prosecution of the litigation against Lukoil and the wind-down of the debtors' estates.

GPMI previously leased approximately 800 stations from Getty Realty, which terminated GPMI's leases in Dec. 2011 when GPMI was unable to pay the rents and has since re-leased the properties.

The court has scheduled a hearing to consider the settlement and any objections to it for July 29. The parties anticipate the Bankruptcy Court's decision as to the settlement to be rendered soon after that hearing. If the Bankruptcy Court approves the settlement, Getty Realty would realize initial cash proceeds from the settlement of approximately $32 million.

Getty Realty is a leading, publicly-traded U.S. REIT specializing in ownership, leasing and financing of convenience store and gas station properties. The company owns and leases approximately 1,040 properties nationwide.