Fuel & Oil Distributor

The Client

Phoenix’s client was a $250 million Fuel and Oil Distributor that distributes its products to a variety of customers, including, state and local governments, school systems, and commercial businesses. The Company also has a yacht division that distributes diesel fuel to the mega yacht market both domestically as well as abroad.

The Company’s operations can be segregated into four main operating units:

• Ground fuel distribution
• Bunkering
• Global yacht fuel distribution
• Gas, propane, and heating oil distribution

The Challenge

The Company operated successfully for many years, but encountered significant losses that resulted from a substantial supply contract that was bid without the benefit of a hedge program, and which therefore exposed the Company to a highly volatile commodity market. Also, the Company was unable to collect approximately $2.3 million from a long-standing customer that faced its own set of financial challenges. As a result of the above, the Company triggered certain events of default under its various agreements and amendments with its senior lender. In response to such events of default, the Company’s senior lender provided the Company with a Reservation of Rights letter and required the engagement of a financial advisor to assist the Company with addressing its various financial challenges.

The Solution

Phoenix completed a thorough review and assessment of the Company, its forecasted performance, and the various challenges the Company was encountering. The assessment included individual analyses of the Company’s operating environment, its hedging program and strategies, management overview, and historical financial overview. At the conclusion of the assessment, Phoenix presented a series of recommendations, which specifically included the following:

• The Company must maintain the institutional discipline to immediately hedge successfully bid Firm Fixed supply contracts, thereby eliminating its cash flow exposure to daily fluctuations in commodity prices
• Management depth needed to be augmented, specifically in relation to its hedging program personnel
• The Company must internally decide the future of its bunkering business, which provides interim liquidity (via borrowing base availability) but returns thin operating margins

Upon the completion and review of Phoenix’s assessment with the Company and its senior lender, Phoenix’s client was able to execute multiple extensions to its existing forbearance agreement with its senior lender, permitting the Company the necessary time to successfully secure replacement financing.