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That fact seemed to please Judge Marsha Parsons, said the report. "I'm glad to hear a sale has been arranged where the majority of Appco employees will keep their jobs," Parsons said after approving a sale motion for Appco, which filed for Chapter 11 bankruptcy protection February 9.
Appco's attorney in the case, Mark Dessauer, filed a motion for the sale August 25. It involves 47 stores and about 100 dealer locations to which Appco provides gasoline. All of the store locations are leased, with more than half owned by Jim MacLean, who sold a then-profitable Appco to Texas-based Titan Global Holdings almost exactly two years ago in a $30 million leveraged buyout.
Under Titan, Appco began struggling in late 2008, and in the last month before bankruptcy most stores didn't have gas or much in the way of inventory. Since March, when Appco gained debtor-in-possession (DIP) financing from lender Greystone Business Credit to keep operating, the stores have limped along, typically losing more than $1 million a month.
Andy Weber, senior vice president of NRC Realty & Capital Advisors LLC, Chicago, retained as Appco's Chief Restructuring Officer in April and charged with selling the chain, testified Tuesday that Greene's company fully intends to return the stores to profitability and has the resources to do it.
"My understanding is that they intend to retain all employees at the store level, and all corporate office [Blountville, Tenn.] employees with the exception of possibly four," Weber told the newspaper. "They intend to stock the stores at a more full level than they are today and to put in the other necessary cash to make them competitive."
The Sunshine purchase differs significantly at the outset from the ill-fated Titan purchase in 2007, the report said. In its highly leveraged purchase, Titan, which did buy some of the store properties, immediately sold those properties for $15 million to help finance the deal, which also involved it borrowing another $20 million from Greystone Business Credit.
Greene's purchase is coming completely from his own cash, as will be any investment required to bring the stores back up to a competitive level (they still lack lottery tickets, phone cards, and face other inventory and maintenance issues that couldn't be remedied with bankruptcy financing).
And while Titan bought a profitable company in 2007, Greene is purchasing one that has been losing money, particularly during bankruptcy. Net losses totaled nearly $7 million from February through July, according to operating reports filed with the court.
In fact, Weber testified Tuesday, it was such performance issues that caused Appco's initial suitor, Empire Petroleum, to withdraw its July 24 offer of $9.1 million and come back August 14 with an offer of $5.5 million.
Hoping he might be able to secure a better offer, Weber worked an agreement with Empire allowing for competing bids. "I wanted to be able to create a bidding competition, and we negotiated the ability to talk to somebody else," he told the paper.
In the meantime, Greene had decided to buy Crescent Oil, a sister company in Kansas that Titan had bought in late 2008 and that declared bankruptcy February 7, said the report. Greene learned of Crescent's bankruptcy because he owned some properties housing Crescent stores, and during Sunshine Investments' due diligence of Crescent, Greene learned about Appco.
Weber testified that Greene contacted him August 18 and they spent time discussing the c-store industry, with Greene asking about valuation and performance data. On August 25, Greene made the $6.25 million bid (plus inventory costs), and Weber said Sunshine Investments will fund the deal.
A management agreement will allow Appco to help Greene's company transition to ownership of the various beer licenses and other official paperwork it needs to operate in Tennessee, Virginia and Kentucky, said the Press. Greene's company has not announced whether it will continue operating the stores under the Appco name, it added.
While Tuesday's action brought Appco's future into much clearer focus, the outcome for creditors remains somewhat cloudy, said the report.
As the secured creditor, Greystone has first priority on sales proceeds, but there are complicating factors. Were the entire $6.25 million to go to Greystone, it would cover the $3 million-plus of DIP financing the company has provided to keep Appco operating since February, and another 30% or so of the $11 million Appco owed Greystone when it filed bankruptcy. A number of "administrative claims," such as attorney and consulting fees, could eat into that, and Greystone agreed to a "carve out" formula that will send $340,000 of the proceeds to the unsecured creditors committee.
Hundreds of unsecured creditorsfrom oil companies and grocery suppliers to accounting firms and Western Unionwere owed more than $7 million when bankruptcy was filed. In addition to the $340,000, they will get $750,000 through another complicated agreement involving former owner MacLean and a $1 million escrow account, the report said.
Whether unsecured creditors split the entire $1,090,000 (about 15% of what they're owed) will depend on whether the lawyers representing them, and consultants who aided in the case, are able to be paid through administrative claims or whether they have to pay themselves out of the $1,090,000.
Either way, both Greystone and all other creditors will walk away from the Appco bankruptcy case with much less than half of what they were owed, said the report.
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