Motor Fuel Distributor

The Client

The Company was a privately held Motor Fuel Distributor in the mid-Atlantic region with annual revenue of approximately $400 million. Headquartered in MD, the Company provides approximately 180 million gallons annually to over 200 sites and commercial customers across the Baltimore/Washington metropolitan area, making it one of the largest independent fuel distributors in the mid-Atlantic region and one of the top 20 in the United States.

The Challenge

In late 2005, the Company purchased 108 gasoline stations and convenience store (“C-Store”) assets in the Washington DC area. The Company financed this acquisition, which more than doubled its size, with $78 million in debt from a consortium of 3 lenders. Phoenix’s client was unprepared in terms of management, systems, and experience to integrate such a large acquisition. An aggressive forecast that was, in part, based on unrealistic assumptions regarding new construction, resulted in inadequate cash flow to support its debt service, and by mid-2007, the loan had been transferred to the workout areas of its lending group.

Market pressure was negatively impacting the Company’s operations, as market volatility reduced customer volume, and the large daily swings in cost often delayed the ability of its dealers to pass price increases along to customers, resulting in lower gross margin to the Company. The recession modified consumer’s habits, resulting in less recreational driving, which reduced their purchase of gasoline. In addition to these market driven challenges, management was inexperienced, had not developed a cohesive strategy, had no plan in place for expiring dealer contracts and was unable to implement change. The Company was largely in a reactive, firefighting mode and needed leadership to develop a strategic approach to volume growth and maximizing cash flow. The Company’s lender had shifted from concerned to “tired” with regard to the Company’s performance and lack of defined recovery and/or exit plan.

The Solution

Phoenix was engaged by the Company to complete an assessment of the Company’s operations, develop and monitor the Company’s weekly cash performance, provide input to the preparation of the financial forecast, assess the management team, and evaluate the overall performance of the Company. Upon submission of the assessment and discussion with both the Company and its lenders it was determined that the current direction was unacceptable and Phoenix was engaged as Chief Restructuring Advisor (“CRA”) in order to refocus the Company and to implement a new strategic direction.

Phoenix streamlined management, reinvigorated sales and marketing functions, assumed control of lending and vendor communication, and spearheaded the renegotiation of a financially strangling supply agreement with the Company’s major fuel supplier. Phoenix provided a sense of order within the Company, and provided tangible operating changes, which led to an initial stabilization of the business. Phoenix led the sale of certain non-performing assets to provide needed cash into the business while significantly reducing G&A. Cash flow improved, but with a significantly overleveraged balance sheet, the Company continued to be constrained by its onerous debt service requirements. With the operational turnaround complete, the owner made the decision to attempt to sell the Company.