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Red Eagle in the Red

Cody, Wyo., retailer, distributor declares bankruptcy; cites economy for inability to pay bills

CODY, Wyo. -- Citing the economic downturn for its inability to over the past two years to collect some of the money it is owed, Red Eagle Oil Inc., a Cody, Wyo.-based fuel distribution business and chain of 15 Red Eagle Food Stores/gas stations in Wyoming, filed for Chapter 11 bankruptcy on August 1.

As reported in a Morgan Keegan/CSP Daily News Flash yesterday, federal bankruptcy Judge Peter J. McNiff at a hearing last week allowed the company to keep running the business as usual for the time being, said the report.

Court documents cited by The Powell [image-nocss] Tribune said Red Eagle has been unable to pay many of its bills since April. Red Eagle said it has "a strong likelihood" of successfully reorganizing, although it has indicated it does not expect to be able to pay all of its creditors.

"While (Red Eagle Oil's) business has suffered in the midst of the current economic downturn, its stores have greater value as an operating enterprise than being closed and the assets sold piecemeal," the company's bankruptcy attorney, Bradley Hunsicker of Casper, wrote in a motion cited by the newspaper.

None of Red Eagle's creditors objected to letting the company continue operating; however, Red Eagle's largest creditor warned that when the summer tourism and revenue drops off in the fall, it will want things to change.

The next hearing in the case is slated for August 22, said the Tribune.

It is not clear from court documents how much Red Eagle actually owes, although if pending lawsuits and bankruptcy documents are accurate, the sum approaches at least $6 million, said the report. In the company's initial bankruptcy petition, it said it owes between $1 million and $10 million. In that petition, Red Eagle checked a box indicating that when it finishes reorganizing, it does not expect to have enough money to pay back its unsecured creditors--those creditors whose lending was not backed by collateral.

A more detailed filing of Red Eagle's assets and creditors, due Monday, was not filed and the company asked for a time extension.

Red Eagle Oil is owned by family members Dale, Judy, Bryan, Brad and Scott Hinze, all of Cody, the report said. The 15 stores are located in Cody (three), Ralston, Lovell, Riverton (two), Buffalo, Casper (two), Sheridan (two) and Guernsey, Wyo.

The company runs all of the stores and owns the gas and merchandise. But with the exception of two of the Cody stores, the land and buildings are owned by a separate corporation also owned by the Hinzes--Red Eagle LLC, court documents said.

Red Eagle Oil also sells fuel wholesale as a distributor and hauls condensate, crude oil and other oil field commodities with a fleet of 26 trucks and 60 trailers. The company employs 114 people, including the owners, office staff, store clerks, truck drivers and others, said the report.

The company started having problems collecting money from its customers when the economy went sour in 2009, Red Eagle Oil vice president Bryan Hinze said in a court filing cited by the Tribune. Red Eagle Oil tried to take on a bulk plant as trade for one particularly indebted account, but the plant's operations failed to cover the amount Red Eagle was originally owed, Hinze said.

Red Eagle then began "factoring" the accounts it was owed--selling debts to a third party in return for a smaller amount of immediate cash. "The expense of factoring ultimately led to [Red Eagle Oil] no longer being able to cash-flow its business," Hinze said.

Company officials say they tried to negotiate "reasonable payment plans" with its vendors and creditors over the past several months, and they hired a real-estate agent to help sell some of the company's property; however, those efforts did not resolve the company's "liquidity and cash-flow crisis," according to documents filed by Hunsicker.

Pinnacle Bank, owed just more than $2 million, is the company's largest creditor, the report said.

Michael LaBazzo, Pinnacle Bank's lawyer, said during the August 8 hearing that the bank has no problem with Red Eagle Oil continuing to use its cash to operate through August, probably September and maybe into October. "But the world will change for this debtor after that," he said, saying Pinnacle would likely object then to allowing business to continue without changes.

"When the winter months come, the history has shown that they [Red Eagle] will not be able to generate enough positive cash flow to service the debt to the bank and meet their other obligations, so that is our concern," he added.

LaBazzo described the company's business model as "hopefully getting back most of what they paid" for fuel while making money by selling items like potato chips in the stores.

Red Eagle Oil has been hit with at least four lawsuits in various courts for allegedly failing to pay for its fuel and supplies, the paper reported. The unpaid debts alone claimed in those cases total more than $3.86 million.

The company has disputed how much it owes in court, but has already been ordered to pay up in one of those cases. On July 21, Wyoming Federal District Court Judge Nancy Freudenthal ordered Red Eagle to pay more than $1.3 million to DATS Trucking of Utah to settle its debt with that company. DATS sued on May 17.
Another one of the companies filing suit, Hermes Inc., also known as Wyoming Refining, alleged that Red Eagle Oil drew as much fuel as it could in early April before Wyoming Refining learned the business was insolvent. Wyoming Refining accused the company of fraud and civil theft, among other claims; Red Eagle Oil denies them.

In all of the civil cases, Dale and/or Bryan Hinze is named as a co-defendant; an additional case in Park County's District Court filed last week by Big D. Oil Co. of South Dakota seeks $53,212 from Dale and Bryan Hinze individually for petroleum products Red Eagle Oil did not pay for.

The bankruptcy petition froze all suits against Red Eagle Oil, and last week Hunsicker asked the court to also block cases from proceeding against the Hinzes, saying the owners need to focus their energy on successfully reorganizing.

Hunsicker indicated the Hinzes may use their other assets to help Red Eagle Oil, said the report. Local properties owned by the Hinzes through other, separate corporations include the One Stop Shoppe and Plaza Fuel locations in Powell and the Libations liquor store in Cody, county property records and state business records cited by the paper indicate.

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