Aegean Marine files for Chapter 11

January 2019 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

January 2019 Issue

Following the discovery of an alleged fraud amounting to $300m in cash and assets, international marine fuel logistics company Aegean Marine Petroleum Network Inc., along with certain subsidiaries, has filed voluntary petitions for relief under Chapter 11 of the US Bankruptcy Code.

Aegean enters the bankruptcy process – filed in the Bankruptcy Court for the Southern District of New York – with the support of Mercuria Energy Group Limited, a key strategic partner and one of the world’s largest independent energy and commodity companies.

Mercuria has agreed to provide more than $532m in post-petition financing to fund the Chapter 11 process. Mercuria has also agreed to serve as the stalking horse bidder in a sale process designed to optimise the value of Aegean as a going concern. Aegean is continuing to explore value-maximising alternatives.

The motion filed by Aegean with the bankruptcy court seeks to jointly administer all of its Chapter 11 cases under the caption In re Aegean Marine Petroleum Network Inc., et al. Aegean and the other debtors will continue to operate their businesses as debtors-in-possession under the jurisdiction of the bankruptcy court and in accordance with the applicable provisions of the US Bankruptcy Code and orders of the bankruptcy court.

An international marine fuel logistics company that markets and physically supplies refined marine fuel and lubricants to ships in port and at sea, Aegean procures product from various sources – such as refineries, oil producers and traders – and resells it to a diverse group of customers across all major commercial shipping sectors and leading cruise lines. Currently, Aegean has a global presence in more than 30 markets around the globe.

Furthermore, Aegean has filed a series of first day motions with the bankruptcy court that seek authorisation to continue to conduct their business in the normal course, including in relation to employees, customers and suppliers, among others. Aegean is also seeking the approval of the Mercuria-led post-petition financing – designed to ensure Aegean has adequate working capital to fund the business and continue ordinary course operations during the Chapter 11 cases and to fund the sale process.

Acting as legal counsel for Aegean is Kirkland & Ellis LLP. Moelis & Company LLC is acting as investment banker and EY Turnaround Management Services LLC is acting as restructuring adviser.

In terms of the fraud allegations, in November 2018, an audit committee investigation reported misappropriation of up to $300m of cash and assets of Aegean. The fraud involved over a dozen Aegean employees, including members of senior management.

The investigation also determined that the principal beneficiary of the misappropriation is Fujairah-based OilTank Engineering & Consulting, which entered into a contract with an Aegean affiliate to oversee the construction of Fujairah Oil Terminal Facility.

“The audit committee believes that the receivables were improperly recorded as part of a scheme to facilitate and conceal an extensive misappropriation of company assets channelled to OilTank, but accounted for as transactions with these shell companies,” stated the audit committee. “We can confirm that approximately $200m of receivables are uncollectible and will be written off.”

The audit committee investigation also uncovered additional actions to defraud the company and its subsidiaries, including prepayment for future oil deliveries that were never made. “These fraudulent activities appear to have commenced as early as 2010,” the committee concluded.

Fraser Tennant