Monday also saw further revelations, during a meeting of "unsecured creditors," about how Appco went from profitability [image-nocss] to bankruptcy within 16 months after being purchased by Titan Global Holdings, a publicly traded holding company based in Richardson, Texas. Those unsecured creditors, which range from gas and grocery suppliers to utilities and landlords, are owed about $7.2 million, while Appco's "secured creditor," lender Greystone Business Credit, is owed about $11 million.
Titan CEO Bryan Chance assured Patricia Foster, the U.S. trustee assigned to the case, that he and his team have nearly secured "debtor in possession" (DIP) financing so Appco, which filed Chapter 11 bankruptcy February 9, can reorganize and put gasoline and products back into its 58 stores.
Foster said Chance's assurance that such financing is "days away" is what she's been hearing from Titan representatives for a month now, and she asked whether Titan was considering selling the stores if the DIP financing did not come through.
"We would entertain that, but I don't think given the financial climate that we're in it would achieve the desired outcome for Greystone Business Credit or the unsecured creditors," Chance said, implying that a sale might not bring enough to pay off all Appco's debts. Federal Chapter 11 bankruptcy law does allow for sale of all or part of a company's assets without necessarily having to enter Chapter 7 liquidation proceedings.
According to the newspaper, Sid Lester, an oil industry veteran who works for Maryville, Tenn.-based Petro Services, which sells and maintains petroleum equipment and is owed more than $38,000 by Appco, said, "It was probably a record year, profit-wise, for distributors throughout the country. He asked, "Where's the money?"
Chance pinned most of the blame for Appco's quick demise on the rapid drop in oil prices late last summer and how that affected Appco's relationship with Greystone, said the report. He said that over several months, Greystone collected about $2.8 million in fees and another $1.7 million in interest from Appco's revenues, along with principal payments.
He said much of the collateral for Appco's loan with Greystone was based on the value of its gasoline holdings, a value that plummeted along with gas prices starting in the early fall. As that situation progressed, Chance said, Greystone began holding part of Appco's receipts in a "lock box" rather than returning them to the company, leaving Appco with one-third less cash than it should have had, he said.
Blountville, Tenn.-based Appco, which by then was the only one of Titan's handful of companies that hadn't failed or been sold, began having trouble paying its bills, securing gasoline and providing fuel to about 160 independent retail locations. It terminated its contracts with the independents around December, ran out of gasoline in its own stores around January 1, and has not added any new products inside the stores since about that time, the report said.
Since it filed Chapter 11, Titan has been struggling to gain DIP financing so it can reorganize and put gasoline in Appco tanks and products in its stores.
Chance said Monday that prospective suppliers of these goods, including some creditors to whom Appco owes large sums, have become more interested in helping Appco after learning about Greystone's role in Appco's financial struggles. "After they understand that [Appco] was at its core a profitable company...and understand the fees and interest and other problems we'd had with our senior lender, they wanted to help," he said.
Lester's response to Chance's explanation that Greystone was largely to blame for Appco's troubles, the paper said, was "it's a bad deal-pretty simple."
But fees and interest payments to Greystone were not the only place Appco's revenues went over the past year, the report added. Foster, the trustee, also asked Chance about more than $3.5 million in transfer payments from Appco to Titan itself that were made between February 2008 and Feb. 1, 2009. Chance said those payments were necessary because while Appco previously was a private company, Titan is a public company with public filings, auditing, financial analysis and other expenses. "These expenses simply relate to the parent company," Chance said, while acknowledging that once Titan's other companies failed, Appco's revenues accounted for "essentially 98%" of Titan's available income, meaning Appco "did bear the brunt of expenses for Titan."
Foster pressed Chance about whether Appco really received any benefit from its payments to Titan, said the report, to which Chance replied that through its financing connections, Titan helped Appco from defaulting on its debt, although that debt did not exist until after Titan bought Appco.
In the hearing, bankruptcy Judge Marcia Parsons set an April 7 date for a final hearing on the use of cash collateral, the report said, though Chance implied in the morning meeting with creditors that Titan should have DIP financing long before that, making the cash collateral issue a moot point. Chance said he hopes for a hearing allowing a DIP agreement by Friday, and he told Foster the stores are on reduced hours, bringing in just $20,000 or so a day in total deposits, "and it's diminishing each day."
"What if you're unable to obtain DIP financing?" Foster asked. Chance didn't directly answer.
Greystone's debt is secured in that it is covered by Appco's assets, the report said. Titan paid $30 million, mostly in borrowed funds, to buy Appco from local businessman James MacLean in September 2007. MacLean, who retained ownership of the buildings and property at most of Appco's Tennessee stores, leases those back to Appco and is an unsecured creditor himself. He was at Monday's meeting, the paper said, accompanied by attorney Greg Logue and Jeff Benedict, who served as Appco's CEO prior to the sale to Titan.
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