Aegean Marine Petroleum Network – Ad Hoc Group of Noteholders Objects to DIP Financing Motion,“Mercuria’s Aggressive Loan-to-Own Strategy”

November 7, 2018 – An ad hoc group of the Debtors’ convertible noteholders (the “Ad Hoc Group”)  filed an objection [Docket No. 29] to the Debtors’ debtor-in-possession (“DIP”) financing motion [Docket No. 17]. The Ad Hoc Group explains, “By the Motion, the Debtors seek approval of Mercuria’s onerous insider debtor-in-possession financing facility (the ‘Mercuria DIP Facility’) which, among other things, is designed to syphon value from the Debtors’ unsecured creditors for Mercuria’s benefit and facilitate Mercuria’s acquisition of all of the Debtors’ assets via an insider credit bid under Bankruptcy Code section 363. Nominally, the Mercuria DIP Facility provides the Debtors with approximately $532 million in DIP financing. In reality, however, Mercuria will provide the Debtors with, at most, only an incremental $152 million of financing through revolving postpetition credit facilities and a new delayed draw term loan. The remaining $380 million of ‘DIP financing’ is in the form of a roll up of Mercuria’s prepetition debt. Mercuria seeks to implement this roll up in an accelerated manner, with 50% of Mercuria’s prepetition debt to be rolled up automatically upon interim approval of the Mercuria DIP Facility and the remaining 50% of Mercuria’s prepetition debt to be transformed into postpetition debt through a ‘creeping roll up’ as prepetition receivables are collected during the early stages of these chapter 11 cases. If approved, the roll up would not only convert all of Mercuria’s prepetition debt into superpriority administrative expense claims, it would provide Mercuria with substantial credit enhancement. This is because Mercuria’s prepetition debt was the obligation of only a subset of the Debtors and secured by only a limited collateral package whereas the rolled-up debt would have the benefit of superpriority administrative expense claims at every Debtor (and claims at certain non-Debtor entities) and receive the benefit of liens on all of the Debtors’ and most of their non-Debtor affiliates’ assets – including unencumbered assets of material value. While roll ups may be approved in certain rare circumstances, there is no basis in the law to convert an insider’s prepetition claims that are the obligation of a subset of Debtors and secured by a limited collateral pool into a postpetition claims at every Debtor entity and secured by an all assets lien.”