The Baron Declaration narrates, “Aegean’s financial performance and operational metrics began to deteriorate in the third quarter of 2017 and continued in the fourth quarter of 2017 with a sharp decline in bunker sales volumes, an operating loss, and negative EBITDA. Aegean attributed the slowdown to certain factors, including strong competitive headwinds in all core supply markets as industry majors increased their worldwide presence and smaller local operators further penetrated regional and single port markets….Limitations imposed by lenders under the U.S. Credit Facility and Global Credit Facility severely hindered Aegean’s ability to purchase fuel at volumes sufficient to maintain operations at historic levels. These lenders reduced the size of each facility during March and April 2018, from a peak of $1 billion to $600 million by May 5, 2018….By reducing the size of these facilities, lenders severely constricted Aegean’s access to necessary working capital to purchase inventory and meet customer demand. The impact of these reductions were further exacerbated by an increase in fuel prices, which meant that Aegean had reduced credit availability with which to purchase increasingly expensive fuel. The result was a decline in Aegean’s volumes to levels well below break-even. At the same time, certain fuel suppliers that had previously provided open credit began requesting that Aegean post a letter of credit or even prepay when purchasing fuel; an impossible request given Aegean’s lack of liquidity.
Concerns over Aegean’s credit quality became a contagion when credit insurance companies serving the marine fuels space cancelled their coverage of Aegean due to its inability to file audited financials. This also spread to Aegean’s customer base, as inquiries to quote and purchase bunkers dropped precipitously during May 2018….These issues had a cascading effect down the borrowing base, eroding its availability first via reduced fuel inventory levels and later by reduced accounts receivable, which in turn reduced the borrowing base and eliminated Aegean’s ability to secure letters of credit to purchase fuel. As volumes fell, gross profit could not cover fixed costs leading to negative free cash flow,,,,On June 4, 2018, Aegean Marine disclosed that $200 million of accounts receivable would likely be written off because the underlying transactions were likely without economic substance. Aegean Marine’s stock, publicly traded on the NYSE, closed down approximately 75% that day. Following this disclosure, Aegean experienced additional deterioration in customer activity and was operating without enough liquidity to procure additional stocks of fuel. In fact, on multiple business days during June 2018, the company had zero borrowing base availability and thus no liquidity, causing fuel inventories in certain critical supply hubs to virtually run dry….Lenders required Aegean to submit to extensive and ongoing financial reporting requirements, and urgently pursue strategic alternatives and contingency planning initiatives by certain milestones, and these lenders formally reduced the size of the credit facilities yet further from $600 million to $455 million on an aggregate basis on June 29, 2018. Virtually all of this reduction came from the Global Credit Facility ($440 million to $300 million), the Debtors’ main source of working capital for worldwide operations.”
Read more Bankruptcy News