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GREENEVILLE, Tenn. -- During a meeting of 58-store Appalachian Oil Co.'s (Appco) unsecured creditors on Monday, one asked a question on many minds, "Where's the money?" according to a report by NET News Service.
Appco, operator of 55 stores, went from profitability to bankruptcy within 16 months after being purchased by Titan Global Holdings, a publicly traded holding company based in Richardson, Texas. Appco paid its 451 employees Monday, three days late, after a bankruptcy judge allowed the convenience store operator to use cash collateral for payroll, overdue health insurance premiums and utility deposits, according to the news service.
But unsecured creditors -- which range from gas and grocery suppliers to utilities and landlords -- are owed some $7.2 million, while Appco's secured creditor, lender Greystone Business Credit, is owed approximately $11 million. Greystone's debt is covered by Appco's assets.
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, according to the report.
MacLean was at Monday’s meeting of unsecured creditors, accompanied by attorney Greg Logue and Jeff Benedict, who served as Appco's CEO prior to the sale to Titan.
Titan CEO Bryan Chance assured Patricia Foster, the U.S. trustee assigned to the case, he and his team have nearly secured “debtor in possession” (DIP) financing so Appco, which filed Chapter 11 bankruptcy Feb. 9, can reorganize and put gas and products back into its stores.
Foster noted Chance’s assurance that such financing is "days away" is what she's been hearing from Titan representatives for a month, and asked whether Titan was considering selling the stores if the DIP financing didn't come through, according to the report.
"We would entertain that, but I don’t think given the financial climate we're in it would achieve the desired outcome for Greystone Business Credit or the unsecured creditors," Chance said at the meeting, implying a sale might not bring enough to pay off all Appco's debts.
Federal Chapter 11 bankruptcy law allows for sale of all or part of a company's assets without necessarily having to enter Chapter 7 liquidation proceedings.
Under steady questioning from Foster, Chance attempted to answer a question that may have been put most bluntly by Sid Lester, an oil industry veteran who works for Maryville-based Petro Services, which sells and maintains petroleum equipment and is owed more than $38,000 by Appco, the report noted.
"It was probably a record year, profit-wise, for distributors throughout the country,” Lester said. "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 Appco's relationship with Greystone. Over several months, he said, Greystone collected $2.8 million in fees and another $1.7 million in interest from Appco's revenues, along with principal payments. 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.
From there 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 gas and providing fuel to its 160-odd independent convenience stores. It terminated its contracts with independents last winter, ran out of gas in its own stores at the start of the year and hasn't added any new products inside the stores since about that time, according to the news report.
Chance said Monday 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 Appalachian Oil 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," Chance was quoted as saying.
But fees and interest payments to Greystone weren't the only place Appco's revenues went over the past year, according to the report. 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 February 2009.
Chance said those payments were necessary because while Appco was under MacLean it 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 once Titan's other companies failed, Appco's revenues accounted for "essentially 98 percent" 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, to which Chance replied that through its financing connections Titan helped Appco from defaulting on its debt -- though that debt didn’t exist until after Titan bought Appco from MacLean.
In the afternoon hearing, bankruptcy Judge Marcia Parsons set a final hearing April 7, on the use of cash collateral, 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. 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."
Chance didn't directly answer Foster's request for his plan if DIP financing did not happen, according to the news account.